Contagious disruptions and complexity traps in economic development

Charles Brummitt, Kenan Huremović, Paolo Pin, Matthew Bonds and Fernando Vega-Redondo
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Charles Brummitt: Columbia University [New York], HMS - Harvard Medical School [Boston]
Matthew Bonds: HMS - Harvard Medical School [Boston]
Fernando Vega-Redondo: Innocenzo Gasparini Institute for Economic Research - Bocconi University [Milan, Italy], BIDSA - Bocconi Institute for Data Science and Analytics - Bocconi University [Milan, Italy]

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Abstract: Poor economies not only produce less; they typically produce things that involve fewer inputs and fewer intermediate steps. Yet the supply chains of poor countries face more frequent disruptions—delivery failures, faulty parts, delays, power outages, theft and government failures—that systematically thwart the production process. To understand how these disruptions affect economic development, we modelled an evolving input–output network in which disruptions spread contagiously among optimizing agents. The key finding was that a poverty trap can emerge: agents adapt to frequent disruptions by producing simpler, less valuable goods, yet disruptions persist. Growing out of poverty requires that agents invest in buffers to disruptions. These buffers rise and then fall as the economy produces more complex goods, a prediction consistent with global patterns of input inventories. Large jumps in economic complexity can backfire. This result suggests why ‘big push' policies can fail and it underscores the importance of reliability and gradual increases in technological complexity.

Keywords: Developing world; Economics; Technology (search for similar items in EconPapers)
Date: 2017-09
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Citations: View citations in EconPapers (2)

Published in Nature Human Behaviour, 2017, 1 (9), pp.665-672. ⟨10.1038/s41562-017-0190-6⟩

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Journal Article: Contagious disruptions and complexity traps in economic development (2017)
Working Paper: Contagious disruptions and complexity traps in economic development (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03589004

DOI: 10.1038/s41562-017-0190-6

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