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Transformational Complexity, Systemic Complexity and Economic Development

José Natera and Fulvio Castellacci

No 20190315, Working Papers on Innovation Studies from Centre for Technology, Innovation and Culture, University of Oslo

Abstract: The paper develops two new notions of economic complexity based on the study of interactions between different capabilities. (1) Transformational complexity denotes a country’s pace of structural transformations over time, arguing that an economy is more t-complex if a large number of factors (capabilities) are able to drive the system out-of-equilibrium and towards new growth paths. (2) Systemic complexity represents a country’s overall density of causal relationships that link together its main capabilities, based on the idea that an economy is more s-complex if its growth path is simultaneously driven by several co-evolving factors. Making use of the Johansen cointegration approach, and using annual time series data for the period 1970-2015, we apply the new notions of complexity to the study of economic development for 134 countries. The results show that systemic (transformational) complexity is positively (negatively) correlated with the ECI index and with GDP per capita. This suggests that economic complexity can be achieved following different growth paths, depending on countries capabilities and the interactions among these.

New Economics Papers: this item is included in nep-hme
Date: 2019-03
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