Economic Complexity Unfolded: Interpretable Model for the Productive Structure of Economies

Por • 13 jul, 2020 • Sección: Economía

Zoran Utkovski, Melanie F. Pradier, Viktor Stojkoski, Fernando Perez-Cruz, Ljupco Kocarev

Economic complexity reflects the amount of knowledge that is embedded in the productive structure of an economy. It resides on the premise of hidden capabilities – fundamental endowments underlying the productive structure. Due to the difficulty in modeling and quantifying capabilities, research efforts have so far concentrated on the exported products as a main proxy to infer the complexity of the productive system. To bridge this gap, we propose a novel probabilistic framework which leverages Bayesian non-parametric techniques to extract the dominant features behind the comparative advantage in exported products. Based on economic evidence and trade data, we place a restricted Indian Buffet Process on the distribution of countries’ capability endowment, appealing to a culinary metaphor to model the process of capability acquisition. Our approach comes with a unique level of interpretability, as it produces a concise and economically plausible description of the instantiated capabilities. This interpretation is key for the subsequent exploitation phase which can be put forward as policy recommendations.

arXiv:1711.07327v1 [econ.EM]

Econometrics (econ.EM)

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