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CNR: Alamanacco della Scienza

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N. 8 - 15 mag 2013
ISSN 2037-4801

International info   a cura di Cecilia Migali

Socio-economico

Economics: measuring the intangible growth potential of countries

Which are the key ingredients for the economic performance of a country and its future development? Economists traditionally measure the performance with the monetary figure of gross domestic product (Gdp) but this at most reflects the actual status.

For the evolution and growth the situation is highly controversial and many intangible elements are invoked: good education, financial status, labour cost, high-tech industry, energy availability, quality of life etc. These concepts are usually discussed in a qualitative way. Now we propose a new way to measure the industrial hidden potential of a country more directly, by linking it to the complexity and diversity of the products a nation produces.

The basic idea is to measure indirectly these intangibles by considering the diversification and complexity of the products that a nation is able to produce. In this view, the main ingredient for future economic expansion is a subtle characteristics that classical economics seems not to grasp. This is the hidden potential of countries: an intangible element underpinning the very concrete reality of how industrial growth will develop in the future.

The main ingredient for future economic expansion is a subtle feature that classical economics seems not to grasp. It can be defined as the hidden potential of countries: an intangible element underpinning the very concrete reality of how competitive and successful a country will be in its future development. Poor countries export a small collection of simple things, which are not very palatable for the globalized market. By contrast, more successful countries export a greater number and broader range of products, some of them very exclusive and sophisticated, apart from almost all the rest. They might be spacecraft components, medical equipment, yachts, computers, fast cars, but also clothing, light bulbs, brick and nails. This means that they are in a pretty good shape, or they have a Fitness according to the new definition.

The key element is how to turn these qualitative considerations into quantitative tools.
In order to quantify the effect of diversification, we have recently introduced a suitable algorithm which defines a new, non-monetary metrics, based on the level of complexity of products to measure the industrial capability of a country (fitness) defined as the number of exported products weighted by their complexity. A crucial new concept is that if various countries produce the same product it is the less competitive country which sets an upper bound to the complexity level of the product. This leads to a non-linear scheme which, together with other elements, leads to results which appear robust and meaningful. Of course the optimization of the algorithm with respect to suitable benchmarks represents a very important point to explore. This implies the availability of new, reliable and meaningful dataset.

Specifically, we argue that the fitness of nations and the complexity of products ought to be linked in two ways. First, the fitness of a nation should be reflected in the diversity and complexity of the products it exports. Economically fitter nations produce both more products and more complex products. Second - and less obviously - the complexity of a product should be reflected by the nations that produce it, but in an inverse way. That is, a product of low complexity, being relatively easy to make, should be produced by many nations, while high-complexity products should only be produced by a few high-fitness nations.

Luciano Pietronero