A Structural Ranking of Economic Complexity

CID Research Fellow & Graduate Student Working Paper No. 119

63 Pages Posted: 30 Nov 2019

See all articles by Ulrich Schetter

Ulrich Schetter

Harvard University - Center for International Development (CID)

Date Written: November 14, 2019

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 fi rst consider a simplifi ed trade model that is centered on the assumption that countries' global exports are log-supermodular (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 simplifi ed trade model apply to this richer set-up. (iii) We fi nally 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, laplacian matrix, log-supermodularity, monotonic eigenvector, ranking

JEL Classification: F10, F11, F14, O49

Suggested Citation

Schetter, Ulrich, A Structural Ranking of Economic Complexity (November 14, 2019). CID Research Fellow & Graduate Student Working Paper No. 119, Available at SSRN: https://ssrn.com/abstract=3485842 or http://dx.doi.org/10.2139/ssrn.3485842

Ulrich Schetter (Contact Author)

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

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