No. 2018-04 - A New Interpretation of the Economic Complexity Index

Date: 05 February 2018

Analysis of properties of the global trade network has generated new insights into the patterns of economic development across countries. The Economic Complexity Index (ECI), in particular, has been successful at explaining cross-country differences in GDP/capita and economic growth. The ECI aims to infer information about countries productive capabilities by making relative comparisons across countries’ export baskets. However, there has been some confusion about how the ECI works: previous stud- ies compared the ECI to the number of exports that a country has revealed comparative advantage in (‘diversity’) and to eigenvector centrality. We show that the ECI is, in fact, equivalent to a spectral clustering algorithm, which partitions a similarity graph into two parts. When applied to country-export data, the ECI represents a ranking of countries that places countries with similar exports close together in the ordering. More generally, ...

J. Doyne Farmer Alexander Teytelboym Penny Mealy

Complexity Economics Economics of Sustainability

No. 2018-04 - A New Interpretation of the Economic Complexity Index

Type: inet-working-paper

Mealy, P., Farmer, J. D. and Teytelboym, A. (2018). "A New Interpretation of the Economic Complexity Index". INET Oxford Working Paper No. 2018-04.

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