A NEW METRIC FOR THE ECONOMIC COMPLEXITY OF COUNTRIES AND PRODUCTS

We discuss a recent new approach to the complexity of countries and products in the spirit of the recent approach by Hidalgo and Hausmann (PNAS 2009). The basic information is represented by the matrix of countries and exported products (COMTRADE). The standard economic analysis is essentially based on the GDP but the diversification of this into a series of different products provides an additional element of fitness in the spirit of biodiversification in a fluctuating environment. According to the standard analysis the specialization of countries towards certain specific products should be optimal but this is valid only in a static situation. The observed data show instead that this is not the case and that diversification is actually more important. The strongly dynamical situation of the world market suggests that flexibility and adaptability are crucial elements of competitiveness. Our new metric has the following properties: 1. It defines a Fitness for countries and a Complexity for products which characterize quantitatively the advantage of diversification with a nonmonetary index. This is obtained by a suitable iteration in the spirit of the Google page rank probem generalized to a bipartite matrix. 2. The iteration adds complexity to the distributions which become broad and Pareto like. 3. Test cases and real applications are strongly improved with respect to previous approaches.
The information provided by this new metric can be used in various ways. The direct comparison of the Fitness with the country GDP gives an assessment of the non expressed potential of the country. Also for each country it is possible to define the Complexity of the products exported and how competitive is this country with respect to the other countries which produce the same product. The behavior of the countries in this new space is rather heterogeneous for different groups of countries. This heterogeneity is crucial to identify a predictive power for the GDP or for the Stock indices. The method permits also a scientific test of the rating and the new variables are shown to be far superior to the standard rating in identifying risky situations long before the collapse. Finally this new approach may be interesting for development planning because it is possible to identify strategies of development wich are more realistic than the traditional one because they take into account the importance of diversification.

Persona di contatto: Leonardo Cosmai   This email address is being protected from spambots. You need JavaScript enabled to view it.

Relatore: prof. Luciano Pietronero, ISC-CNR and Univ. Sapienza, Roma, Italy