Economic complexity index

The economic complexity index (ECI) is a holistic measure of the production characteristics of large economic systems, usually whole countries. As most of the measurements used in complexity economics, the goal of this index is to explain an economic system as a whole rather than the sum of its parts. The ECI looks to explain the knowledge accumulated in a country's population (the networks that people form) and that is expressed in the country's industrial composition. To achieve this goal, the ECI combines metrics of the diversity of countries and the ubiquity of products to create measures of the relative complexity of a country's exports. The product equivalent of the Economic Complexity Index is the Product Complexity Index of PCI.

Background

The ECI was developed by Cesar A. Hidalgo, from the MIT Media Lab and Ricardo Hausmann, from Harvard University's Kennedy School of Government. ECI data is available in The Observatory of Economic Complexity. The original formulation of the Economic Complexity Index was published in PNAS in 2009.

Formulation

In its strict mathematical definition the ECI is an eigenvector of a matrix connecting countries to countries, which is a projection of the matrix connecting countries to the products they export. Since the ECI considers information on the diversity of countries and the ubiquity of products, it is able to produce a measure of economic complexity containing information about both the diversity of a country's export and their sophistication. For example, Japan or Germany, with high ECI's, export many goods that are of low ubiquity and that are produced by highly diversified countries, indicating that these are diverse and sophisticated economies. Countries with low ECI, like Angola or Zambia, export only a few products, which are of relatively high ubiquity and which are exported by countries that are not necessarily very diversified, indicating that these are countries that have little diversity and that the products that they export are not very sophisticated.

Utility

Hidalgo and Hausmann propose the concept of ECI not only as a descriptive measure, but also as a predictive tool for economic growth. According to the statistics models presented in their Atlas of Economic Complexity (2011), the ECI is a more accurate predictor of GDP per capita growth than traditional measures of governance, competitiveness (World Economic Forum's Global Competitiveness Index) and human capital (as measured in terms of educational attainment).

See also

• Complexity science
• Econophysics
• List of countries by economic complexity
• List of countries by future GDP based on ECI estimates|List of countries by future GDP estimated with ECI