WEF Africa 2012: The Observatory of Economic Complexity

This is Africa

May 2012

Commentary by: Cesar A. Hidalgo

Insensitivity of development advice to a country’s context is a fundamental criticism against the so-called Washington Consensus. This coarseness is reflected in concepts – openness to trade, governance, institutions, intermediate inputs or education – that we have come to believe as real. Yet they are abstractions that hide away complexity and might be blind to the context-specific structure that underpins people’s ability to generate prosperity.

Thinking about international development through aggregate terms might be no better than trying to understand biological organisms as mixes of water, proteins, lipids and nucleic acids. Ultimately, to understand problems of organised complexity we need to develop perspectives that look at these problems with a "genetic" resolution. Most of the tools available, however, do not have that resolution or even attempt to provide it.

During recent years we have found that detailed data on the mix of products that countries export provides a high resolution picture of a country’s economy. No two countries export the same mix of goods, and hence the goods that are associated with each country provide a unique fingerprint, a phenotype, that contains valuable information of a country’s productive genotype.

One important measure that emerges from this high resolution fingerprint is "economic complexity"; a measure that infers the diversity of knowledge available in an economy from binary information on who exports what. Economic complexity matters because it is an excellent leading indicator of per capita income. In fact, it outpredicts the WEF’s global competitiveness index, and standard measures of governance and education by nearly 1000 percent. Yet, the value of a disaggregated approach goes beyond that of predicting the aggregate, since it opens a door to context-specific knowledge.

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