The Growth Lab's Most Important Academic Papers of the Past Decade on Economic Complexity

This blog post originated as a thread on Twitter. Written by Frank Neffke. 

At the Growth Lab, an interdisciplinary team of researchers explores the foundations of economic growth from both an academic and applied angle.

Our Economic Complexity approach starts from the assumption that technology takes the form of tools, codes and knowhow. Because each individual can only acquire so much knowhow in a lifetime, a country’s collective knowhow grows by distributing different bits of knowhow across different brains. In that sense, countries know more, because individuals in them know different. Complex places are places that can mobilize a diverse body of knowhow. Complex products are products that require more knowhow. Two core quantities developed at the Growth Lab are the Product Space (a network that links products or industries with similar capabilities requirements) and the Economic Complexity Index (ECI, a measure of how much knowhow an economy can mobilize).

Since knowhow is often tacit, embodied in skills and routines, knowhow diffuses with people and teams of people. However, because knowhow is distributed across different people, to use it, it needs tying back together by firms, cities, or countries.

Our research established that this view has testable implications that are borne out in the data. In our work, we explore how knowhow grows at the local level, how it diffuses and how it is coordinated within individuals, firms, and value chains. Below, we list our most important academic papers of the last ten years on Economic Complexity.

The Network Structure of Economic Output (2011)
Modeling complexity: Ricardo Hausmann and César Hidalgo describe the economy as a tripartite network connecting places to the capabilities they have and products they can make, explaining stylized facts about exports and why complex worlds feature a poverty trap.

Network Structure of Economic Output

Explaining the Prevalence, Scaling and Variance of Urban Phenomena (2016)
Taking the model to cities, Andres Gomez-Lievano, Oscar Patterson-Lomba and Ricardo Hausmann ask: Why do larger cities exhibit higher wages and more innovation, but also more rare diseases and crimes? Because these all are socially complex phenomena. 

The Atlas of Economic Complexity (2011)
Authored by Ricardo Hausmann, César Hidalgo, Sebastian Bustos, Michele Coscia, Alex Simoes and Muhammed Yildirim, the Atlas is a guide to the world of economic complexity through trade data: explanations of core concepts, empirical tests and country-specific visualizations. [Explore the tool]

A Structural Ranking of Economic Complexity (2019)
Measuring complexity: Ulrich Schetter embeds a structure of log-supermodular productivities into a multi-product Eaton-Kortum model to show that under these conditions the Economic Complexity Index really does measure complexity.

Implied Comparative Advantage (2014)
The Product Space revisited: Hausmann, Dan Stock and Muhammed Yildirim construct a Ricardian model to explain why growth of exports in countries (or of industries in cities) can be predicted from product and country spaces.

Why do Industries Coagglomerate? How Marshallian externalities differ by industry and have evolved over time (2016)
Neave O'Clery, Dario Diodato and Frank Neffke dissect the industry space: Why do industries collocate? It depends: services to share workers, manufacturing to be close to their value chain. But over time, sharing workers increasingly dominates.

Industrial Coagglomeration

Skill Relatedness and Firm Diversification (2012)
Firms diversify into industries for which their workers have the right skills. Frank Neffke and Martin Henning show that skill-relatedness, which they infer from large-scale data on how people change jobs across industries, predicts firm diversification 60x better than value chain linkages.

Skill relatedness and firm diversification

Automation, Skills Use and Training (2018)
Capabilities of machines: Ljubica Nedelkoska and Glenda Quintini estimate the risk of automation for 32 countries, representing close to 600M jobs. It is the jobs of the young, not the old that are more at risk of automation.

​Welcome Home in a Crisis: Effects of Return Migration on the Non-migrants' Wages and Employment (2018)
Diffusing knowhow through return migration. Hausmann and Nedelkoska show that the massive return of relatively low-skill, yet experienced Albanians from Greece in the financial crisis didn't lead to unemployment, but to new jobs & wage increases. 

​​Agents of Structural Change: The Role of Firms and Entrepreneurs in Regional Diversification (2017)
How do regions make long developmental jumps? Frank Neffke, Matte Hartog, Ron Boschma and Martin Henning show that regions change mostly by the creation of new economic establishments. However, the most transformative diversification is not due to new establishments of local firms or local entrepreneurs, but due firms and, to a lesser extent, entrepreneurs from outside the region starting new establishments and therewith transferring new capabilities to the region from elsewhere.

Agents of Structural Change

​The Workforce of Pioneer Plants: The Role of Worker Mobility in the Diffusion of Industries (2019)
How did former East Germany reindustrialize? Using social security data, Hausmann and Neffke show that the pioneer firms in the east that brought in new manufacturing industries relied heavily on the sudden possibility of accessing human capital in the west: the majority of experienced workers in these firms did not come from eastern Germany, but moved in from western parts of the country.

Workforce of pioneer plants

​​Neighbors and the Evolution of the Comparative Advantage of Nations: Evidence of International Knowledge Diffusion? (2014)
Learn from your neighbors. Dany Bahar, César Hidalgo, and Ricardo Hausmann show that countries diversify their exports by moving into products that their neighbors were already exporting. This paper also introduces the country space: a network linking countries with similar exports.

​Knowledge Diffusion in the Network of International Business Travel (2020)
However, learning doesn't require permanent proximity. Michele Coscia, Frank Neffke, and Ricardo Hausmann show how transient proximity diffuses knowledge through business travel, helping countries diversify into the industries of their visitors’ home countries. [Explore the research]

The Value of Complimentary Co-workers (2019)
Coordinating knowhow. If global knowledge keeps growing, we need to divide it across ever more people. As Frank Neffke shows, the result is growing interdependence: the value of your skills comes to depend on how well your co-workers’ skills complement yours. [Explore the research]

Functional Structures of US State Governments (2018)
State capabilities. Steve Kosack, Michele Coscia, Evann Smith, Kim Albrecht, Albert-Laszlo Barabasi and Ricardo Hausmann reconstruct the online digital footprint of US state governments and show that it mostly reflects not ideology or location but a state’s economic structure. [Learn more]

Network of US State Governments

Horrible Trade-offs in a Pandemic: Lockdowns, Transfers, Fiscal Space, and Compliance (2020)
Fighting COVID-19 involves horrible trade-offs. Ricardo Hausmann and Ulrich Schetter show why they are particularly excruciating in countries without unlimited access to foreign credit and why there is a dire need of massive financial support. [Learn more]

You'll find all of our publications in the Growth Lab's repository Our research agenda keeps deepening & expanding: we are working on theoretical foundations, the diffusion, adoption and upgrading of capabilities, innovation, changing tasks and occupations, localization and more. Stay tuned!