Leontief Meets Shannon - Measuring the Complexity of the Economic System

Dave Zachariah and Paul Cockshott

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Abstract: We develop a complexity measure for large-scale economic systems based on Shannon's concept of entropy. By adopting Leontief's perspective of the production process as a circular flow, we formulate the process as a Markov chain. Then we derive a measure of economic complexity as the average number of bits required to encode the flow of goods and services in the production process. We illustrate this measure using data from seven national economies, spanning several decades.

Date: 2017-05, Revised 2017-07
New Economics Papers: this item is included in nep-hme
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1705.02154

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