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Working Papers
Technological know-how in a country shapes its growth potential and competitiveness. Scientific publications, patents, and international trade data offer complementary insights into how ideas from science, technology, and production evolve, combine, and are transformed into capabilities. Analyzing their trajectories enables a more comprehensive and multifaceted understanding of the whole innovation process, from generating ideas to internationally commercializing products. We analyze the production patterns in these three domains, documenting the differences between advanced and emerging market economies. We find that future income, patenting, and publishing growth correlate with the economic complexity indices calculated from these domains. Capabilities embedded in the country also shape future diversification opportunities and make the innovation process path dependent. Lastly, we also show that diversification opportunities can be inferred across innovation domains.
Working Papers
Recent geopolitical challenges have revived the implementation of industrial and innovation policies. Ongoing discussions focus on supporting cutting-edge industries and strategic technologies but hardly pay attention to their impact on economic growth. In light of this, we discuss the design of innovation policies to address current development challenges while considering the complex nature of productive activities. Our approach conceives economic development and technological progress as a process of accumulation and diversification of knowledge. This process is limited by the tacit nature of knowledge and by countries’ binding constraints to growth. Consequently, effective innovation policies should be place-based and multidimensional, leveraging countries’ existing capabilities and addressing countries’ current problems. This contrasts policies that lead to economic efficiencies, such as copying other countries’ solutions to problems that countries do not currently have.
Working Papers
Economic development is a path-dependent process in which countries accumulate capabilities that allow them to move into more complex products and industries. Inspired by a theory of capabilities that explains which countries produce which products, these diversification dynamics have been studied in great detail in the literature on economic complexity analysis. However, so far, these capabilities have remained latent and inference is drawn from product spaces that reflect economic outcomes: which products are often exported in tandem. Borrowing a metaphor from biology, such analysis remains phenotypic in nature. In this paper we develop a methodology that allows economic complexity analysis to use capabilities directly. To do so, we interpret the capability requirements of industries as a genetic code that shows how capabilities map onto products. We apply this framework to construct a genotypic product space and to infer countries’ capability bases. These constructs can be used to determine which capabilities a country would still need to acquire if it were to diversify into a given industry. We show that this information is not just valuable in predicting future diversification paths and to advance our understanding of economic development, but also to design more concrete policy interventions that go beyond targeting products by identifying the underlying capability requirements.
Working Papers
This paper examines Japan’s economic performance in recent years, uncovering a narrative that challenges conventional views. Despite slow productivity growth, Japan maintains the highest economic complexity globally due to its sophisticated export portfolio. The study reveals that while Japan has been experiencing a decline in goods export market shares it has had a rise in services exports, particularly in R&D licensing. Furthermore, Japan has significantly increased its net foreign assets and direct investments abroad, resulting in abnormal high returns. These results put together suggest that Japanese firms —perhaps in reaction to a stagnant domestic labor force—are leveraging their extensive knowledge capital by investing and redeploying resources internationally, which are generating these higher returns. The increasing wealth generated abroad results, we show, in an expansion of non-tradable activities which are less productive, driving down aggregate productivity growth. The paper also highlights concerns over declining innovation quality, posing risks to Japan’s future economic performance and its ability to redeploy its accumulated knowledge to enjoy from unusually high returns from their foreign investments. The findings emphasize the need for policy reforms to enhance innovation quality to sustain Japan’s productivity of non-tradable activities and with an immigration policy that may change the downward trend in labor supply.
Working Papers
Alarming rates of forest loss in the Colombian Amazon have created a perceived trade-off that the only means of achieving economic prosperity is by sacrificing the forest. This study finds little evidence of this trade-off; rather, we find that economic development and forest protection are not an either-or choice. Forest clearing is driven by extensive cattle-ranching as a means to secure land titles. In essence, the loss of some of the world’s richest biodiversity is the result of some of the least economically complex activities that fail to achieve economic prosperity in the region. If anything, the acceleration in deforestation has accompanied a period of economic stagnation.
The existing economic model in the Amazon – centered on agrarian colonization and mineral extraction – has not generated prosperity for the people, all while failing the forest. The exceptional diversity of the Amazon’s biome is not reflected in the region’s economy. The Amazonian economy is best characterized by its low diversity and low complexity. A significant proportion of employment is linked to public administration – more than in other departments of the country. Very little of the production in the departments is destined to be consumed outside the departments (“exported”).
This study seeks to define an alternative economic model for the Colombian Amazon from the perspective of economic complexity with environmental sustainability. Economic complexity research finds that the productive potential of places depends not only on the soil or natural resources, but on the productive capabilities—or knowhow—held by its people. This research finds that the Colombian Amazon will not become rich by adding value to its raw materials or by specializing in one economic activity. Rather, economic development is best described as a process of expanding the set of capabilities present to be able to produce a more diverse set of goods, of increasingly greater complexity. This model starts from the base of understanding the existing productive capabilities in Caquetá, Guaviare, and Putumayo, to identify high-potential economic sectors that build off those capabilities to achieve new, sustainable pathways to shared prosperity.
Achieving shared prosperity in the Amazon depends on the connectivity and opportunity in its urban areas. The primary drivers of greater economic complexity – and prosperity – are the cities in the Amazon. Even in the remote areas of the Amazon, the majority of people in Caquetá, Guaviare, and Putumayo live in urban areas. The low prosperity in the Colombian Amazon is driven by the lack of prosperous cities. The report finds that Amazonian cities are affected by the lack of connectivity to major Colombian cities that limit their ability to ‘export’ things outside the department to then expand the capacity to ‘import’ the things that are not produced locally as a means to improve well-being.
Working Papers