Abstract
Countries that achieve economic complexity in a holistic way are well-prepared to respond to external shocks through internal processes that may also improve their resilience. This article suggests that the Economic Complexity Index (ECI) can capture this ‘resilience dimension’ of complex economies and assesses their contribution to sustainable change through the amalgamation of export and import information. This novel methodological approach incorporates import information by applying amalgamation on a pre S-Level, which is based on the Lie-Trotter methodology, inducing a Random Walk on a Graph. In the empirical part, this procedure is examined. It shows that the ECI ranking may not always reflect the underlying internal economic complexity of a country, and with it, the country’s resilience and contribution to sustainable change. The novel approach is to some extent comparable with the degree of eligibility criteria of the original ECI and consistent with the organic evolutionary character of complex economies. After translating the ECI framework into its stochastic counterpart, the proofs of its interpretation in statistic and probabilistic terms, and its relationship to the Shannon Entropy are conducted. Coherency conditions of sustainability as further eligibility criteria are formulated and the degree of coherency of the ECI is investigated. In view of the challenges related to data preparation, we suggest applying the approach to a broader set of data including import information in order to gain additional insights in a country’s internal economic complexity and resilience.
Highlights
The Economic Complexity framework was developed by César Hidalgo and RicardoHausmann to measure the accumulated productive knowhow of a country and to deduce from it its future growth prospects [1]
We proceed as follows: First, the method of reflection has to be embedded in matrix language followed by its stochastic counterpart; second, the second eigenvector e2 has to be interpreted in statistic, probabilistic, and information theoretical terms, and the relationship of e2 with the Shannon Entropy has to be confirmed; third, a framework has to be established for the engineering of the matrix S and an economic performance equivalent (EPE) has to be introduced as a version of import to export so that they are compatible in order to perform the amalgamation operation; fourth, the coherency conditions of ranking with respect to sustainability have to be established in order to assess the quality of our suggestion
For the quality of our suggestion, we conducted the following steps: First, we confirmed the symmetry and positivity of the amalgamated matrix S; second, we formulated conditions of coherency and of a sustainability index; third, we investigated the coherency behavior of the second eigenvector e2 in the standalone case and compared it with a Random Walk on a Graph based on amalgamation of export with import information on a pre S level
Summary
Hausmann to measure the accumulated productive knowhow of a country and to deduce from it its future growth prospects [1]. It is based on the assumption that the extent and diversity of human capabilities in a country can be inferred from export data taking into account the diverse range of exported products (diversification) and how broadly they are supplied into world markets (which is expressed by a function of ubiquity) by various countries. In this context, a product is a carrier of information that signals the existence of the requisite capabilities of a country. In what sense is the ECI not just related to long-term economic growth, and to more inclusive and sustainable change? In this paper, we hypothesize that this question can be answered to some extent through a better understanding of the internal complexity of an economy, and its capacity to respond to external shocks through swift shifts in the economy
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