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A Structural Ranking of Economic Complexity

Ulrich Schetter

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

Abstract: We propose a structural alternative to the Economic Complexity Index (ECI, Hidalgo and Hausmann 2009; Hausmann et al. 2011) that ranks countries by their complexity. This ranking is tied to comparative advantages. Hence, it reveals information different from GDP per capita on the deep underlying economic capabilities of countries. Our analysis proceeds in three main steps: (i) We first consider a simplified trade model that is centered on the assumption that countries' global exports are logsupermodular (Costinot, 2009a), and show that a variant of the ECI correctly ranks countries (and products) by their complexity. This model provides a general theoretical framework for ranking nodes of a weighted (bipartite) graph according to some underlying unobservable characteristic. (ii) We then embed a structure of log-supermodular productivities into a multi-product Eaton and Kortum (2002)-model, and show how our main insights from the simplified trade model apply to this richer set-up. (iii) We finally implement our structural ranking of economic complexity. The derived ranking is robust and remarkably similar to the one based on the original ECI.

Keywords: bipartite graph; economic complexity; international trade; laplacianmatrix; log-supermodularity; monotonic eigenvector; ranking (search for similar items in EconPapers)
JEL-codes: F10 F11 F14 O49 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-hme
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Working Paper: A Structural Ranking of Economic Complexity (2019) Downloads
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