Here is a picture of the kind you do not see very often in economics:
What it shows is the pattern of specialization of different parts of the world, and how different commodities are related to each other in product space according to a particular metric of proximity.
The work in question is a collaboration between my friend and colleague Ricardo Hausmann and the well-known physicist Albert-Laszlo Barabasi, along with two graduate students (Cesar Hidalgo and Bailey Klinger), and has just been published in Science magazine. You can download it here.
How does this framework help us think about development and specialization? As Ricardo would say, think of the product space as a forest, goods as trees, and entrepreneurs as monkeys. Countries develop as monkeys jump from tree to tree. Trees further away are harder to jump to. Some parts of the forest are denser than others. What trees you have monkeys on today determines where your monkeys will be tomorrow. And it goes from there.
Fascinating. I did a little preliminary look for a PhD-level Development Economics course on the applicability of network dynamics to development theory -- I was very optimistic it could shed some new light on growth patterns, common experiences, "phase transitions" to new states of development and growth, etc. I'm glad to see it's starting to go somewhere. I think it could shed some real light on outcomes for different policies across countries at different development levels. Ultimately, I'd like to see it explain Total Factor Productivity differences by analyzing the economy as one giant flow along a network, like a plant spontaneously organizing itself efficiently (or not, depending on the conditions) to deliver nutrients to each part of itself. High TFP would mean a network with certain properties (scale-independence in a variety of fields, most of all). (Maybe I'm behind the times and TFP isn't still the mystery it once was. The papers were from the class were all a few years old.)
Posted by: Ryan Luck | July 28, 2007 at 01:22 AM
Wonderful analogy.In the place of extreme maths,these kinds of explanations are illuminating.
Posted by: GVV | July 28, 2007 at 02:57 AM
A similar approach is Akamatse Kaname's "flying geese" model.
Posted by: GVV | July 28, 2007 at 03:01 AM
A similar approach is Akamatse Kaname's "flying geese" model.
Posted by: GVV | July 28, 2007 at 03:03 AM
Network theory is dynamically applied to international trade at http://www.princeton.edu/~ina/gkg/confs/piana.pdf
Based on it and on the Science paper by Haussman, Barabasi et al., a new policy is proposed at
http://www.economicswebinstitute.org/essays/proximityproduct.htm
where data are available as well.
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