A recently released book by Harvard Kennedy School Economist Ricardo Hausmann and MIT Physicist Cesar A. Hidalgo claims to offer the best model for predicting the economic growth of nations.
The colorful, 362-page volume—entitled the “Atlas of Economic Development” is filled with bright graphs and figures representing the economies of each nation.
Hausmann and Hidalgo chose to represent economic complexity visually, saying that the brain is much better at processing graphical representations than manipulating symbols. “We are exploiting the part of the brain best suited to absorbing information,” said Hausmann.
The atlas ranks 128 nations on “economic complexity,” a measure that describes the diversity of a country’s knowledge and how it is combined for the economy to grow.
“It has incredible properties,” said Hausmann. “It explains why countries are poor or rich, and predicts which countries will have an easy time of growing and which countries will face headway in expanding knowledge.”
Every country in the atlas is illustrated by a “product space,” a web of nodes that represents its economy. Each node signifies one product; they are color-coded based on industry and clustered near other nodes that require similar pools of knowledge to make.
“By looking at the product space, we can predict not only how fast countries are going to grow, but which industries they’re going to enter and which industries they’re going to exit,” said Hidalgo. “The predictive power of economic complexity, when it comes to future economic growth, is a thousand percent more effective than measures of education, governance, or competitiveness.”
The atlas predicts faster economic growth when countries have a greater difference between economic complexity and income. China, India, and Thailand top the rankings for “expected growth percentage of GDP in 2020.”
“Surprisingly, several East European countries, such as Belarus and Ukraine, rank highly in the measure, as well as Mexico, which is contrary to most economic models,” said Hausmann.
Although the U.S. comes in 91st place for expected growth, the model projects that the U.S. will still contribute the most—22 percent—to world GDP growth through 2020. The U.S. economy was ranked 13th most complex overall.
The authors said they hope that their research is used by countries to maximize their economic development.
“We would like people to use this to better understand the position of their countries in the global economy based on what they’re making, not necessarily how much, to then strategize better when making decisions of how to allocate businesses and how to help their economy more forward,” Hidalgo said.