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Contrary to conventional economic growth theory, which reduces a country’s output to one aggregate variable (GDP), product diversity is central to economic development, as recent, “economic complexity”, research suggests. A country’s product diversity reflects its diversity of knowhow or “capabilities”. Researchers proposed the Economic Complexity Index (ECI) and the country Fitness index to estimate a country’s number of capabilities from international export data; these measures predict economic growth better than conventional variables such as human capital. This paper offers a simpler measure of a country’s knowhow, Log Product Diversity (or LPD, the logarithm of a country’s number of products), which can be derived from a one-parameter combinatorial model of production in which a set of knowhows combine with some probability to turn raw materials into a product. ECI and log (Fitness) can be interpreted theoretically (using the combinatorial model) and empirically as potentially noisy estimates of LPD; moreover, controlling for natural resources, the simple measure better explains the cross-country differences in GDP and in GDP per capita.


ESI Working Paper 21-11

This paper later underwent peer review and was published as:

Inoua, S. M. (2023). A simple measure of economic complexity. Research Policy, 52(7), 104793.

A Simple Measure of Economic ComplexityWP.pdf (1173 kB)
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This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.



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