Sorting, Matching and Economic Complexity 

CID Faculty Working Paper No. 392

Muhammed A. Yildirim 
March  2021


Assignment models in trade predict that countries with higher productivity levels are assortatively matched to industries that make better use of these higher levels. Here, we assume that the driver of productivity differences is the differential distribution of factors among countries. Utilizing such a structure, we define and estimate the average factor level (AFL) for countries and products using only the information about the production patterns. Interestingly, our estimates coincide with the complexity variables of (Hidalgo and Hausmann, 2009), providing an underlying economic rationale. We show that AFL is highly correlated with country-level characteristics and predictive of future economic growth.

Keywords: International Trade, Supermodularity, Ricardian Model, Assignment Models, Sorting, Complexity, Economic Complexity

JEL Classifications: F10, F11, F14, O41, O47, O50

Affiliated Program: Growth Lab