Economic Complexity: What It Is and Why It Matters For Local Economies
Economic Complexity: What It Is and Why It Matters For Local Economies
Economic complexity measures the diversity and sophistication of an economy's productive capabilities and knowledge networks.
Introduction
Twenty-first century economies could hardly be subject to more pressure and more change than now. These pressures extend beyond interest rates and trading block competition into the roots of invention and the future of society.
New categories of technology are powering emerging industries while radically transforming traditional ones. Talented people both drive these changes while also developing new skills and responding to different sets of incentives. The overall effects are felt at national, regional and municipal levels, with massive future consequences for quality of life.
Taken as a whole, significant opportunities await astute local governments, businesses, economic development groups, and educational institutions.
In Simple Terms, What Is Economic Complexity?
The physical location of research, innovation, production and industry is observable and measurable. Technologies and products emerging from these places — in terms of their range and sophistication — are also measurable. It is these outputs that economic complexity measurements capture, in two ways:
Production: The range and sophistication of technologies and products produced by an economy.
Knowledge: The range and sophistication of the knowledge required to produce said technologies and products.
Why Does It Matter?
When high levels of know-how combine with advanced infrastructure the result is cutting-edge innovation, new products and services, a resilient, advanced economy and a powerful attractant to others with know-how.
Conversely, the relative absence of these factors renders an economy vulnerable to change and less able to retain talent.
When economic complexity is measured, interesting observations emerge:
A strong economy is not the same as an economically complex economy. A strong economy today may not be strong tomorrow as new pressures and changes are brought to bear.
People leave less complex economies for more complex ones. Economic complexity exacerbates the tendency of research, technology and business to geographically cluster, to the potential detriment of places outside those hubs.
A Front Burner Issue For Municipalities
Economic complexity is often measured at the national level but of course nations are the aggregate of a wide range of places and economic performance. Cities and regions must include economic complexity in their thinking in order to future proof their citizens’ future well-being and quality of life.
Resources
Understanding the precise set of factors making one place more complex than another is the subject of intense study, from policy to practice.
The Atlas of Economic Complexity
Extremely useful data visualization tool. A country on the rise? Vietnam.
The Growth Lab at the Harvard Kennedy School
Check out “Pathways to Prosperity in Wyoming”
The Observatory of Economic Complexity (OEC)
Blends trade, technology and research metrics to build up a picture of national economies
The New Paradigm of Economic Complexity
Foundational article explains economic complexity and its importance. “…the growth of know-how happens thanks to specialization”
Research Summaries
Unsurprisingly, economic complexity is itself a complex subject. For municipal, economic development, and higher education leaders, economic complexity touches on a huge number of important topics, from innovation ecosystems more broadly to specifics like infrastructure, specialization, partnerships and the design of place.
To address your need to stay up to speed while recognizing that your time is limited, The Groundbreakers now includes a new section, Research Summaries. For local leaders in higher education, government and economic development, it is designed to present need-to-know information from key research: what the research is about, why it’s important, and what you should do.
Every paper is referenced so that you can find read the full text. (Note that some papers are paywalled.)
For example, The New Paradigm of Economic Complexity is summarized here.