ECONOMIC COMPLEXITY

In a global economy companies are able to move resources, production capacity and operations around to take advantage of talent and labor pools, production inputs as well as capital markets. This ability to leverage global supply chains allows for flexibility but also for value creation in ways and places previously at a disadvantage. In the process, the comparative advantage of nations is transformed into flexible resources for companies. National governments, in turn, develop incentives (and sometimes disincentives) to steer companies in directions under the guidance of policy priorities.

It is not only the comparative advantage a country has in specific fields that are important, but the need for a country to increase the role it plays in the value chains of industries and sectors. In the process, countries acquire know how that can be leveraged further to increase national participation in value creation. This process is akin to the transformation countries experienced as a result of companies seeking labor arbitrage opportunities during the 1980s and 1990s. Companies first entered places such as China looking for cheap labor. As other companies followed looking for similar advantage, employees who gained some skills could compete for new jobs and participate at higher levels of economic value, setting off a process of transformation from low skilled low-wage environments to semi-skilled labor and even highly skilled specialized work. Along came prosperity, and also economic complexity.

CID Harvard – Why are some countries poor? by Ricardo Hausman

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CID Harvard – What is knowhow? by Ricardo Hausman

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When studied closely, one can see the process of up-skilling and increasing economic complexity is not random but rather driven by national policies and incentives. Rather, skills develop in related task-sets and up-and-down the value chain an industry or sector. The resulting network of related activities leads to the development of economic clusters, with the companies with similar or related processes and technologies co-locating. This can lead to rapid increases in economic value produced in a country because of increased economic complexity.

CID Harvard – What is Growth Diagnostics? by Ricardo Hausman

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CID Harvard – What is the Product Space? by Ricardo Hausman

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CID Harvard – THE ATLAS OF ECONOMIC COMPLEXITY 

The Observatory of Economic Complexity by Alexander Simoes