Economic complexity and the globalization of services

Abstract

Economic complexity has emerged as an important metric to measure nations’ inherent capabilities that are embodied in the structure of economic production. However, traditional measures of complexity only capture manufacturing-based capabilities, ignoring the growing importance of services in global trade. Technological innovations are increasingly splintering and disembodying services so they can be produced, transmitted, and consumed globally. This paper incorporates the role of service globalization to present a more complete picture of the economic complexity of nations. Using a non-linear iterative algorithm, this paper ranks the ‘fitness’ of countries based on the diversity and ‘complexity’ of specialization patterns. Modern technology-enabled service exports are fairly complex specializations but becoming increasingly ubiquitous. Developing countries show greater economic strength accounting for the growing tradability of services. A framework to aid decision-making about product/service export diversification strategies is proposed.