The Theory of Economic Complexity

C\'esar A. Hidalgo and Viktor Stojkoski

Papers from arXiv.org

Abstract: We provide a mechanistic foundation for economic complexity methods. In our model, an economy's ability to produce an activity depends on the joint presence of required factors. We analytically derive the Economic Complexity Index for this model and show that it is a monotonic function of the probability an economy holds many factors, validating it as an agnostic measure of productive capabilities. We also show that this model explains differences in the shape of networks of related activities, such as the product space or research space. These findings solve long standing puzzles in the literature on economic complexity.

Date: 2025-06, Revised 2026-02
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http://arxiv.org/pdf/2506.18829 Latest version (application/pdf)

Related works:
Working Paper: The Theory of Economic Complexity (2025)
Working Paper: The Theory of Economic Complexity (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2506.18829

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