Rethinking economic complexity measures

The Economic Complexity Index (ECI) and Product Complexity Index (ECI) have been widely influential metrics to quantify the productive capabilities of locations and capability requirements of products, respectively. Although these measures have been shown to be correlated with important economic phenomena such as income per capita and economic growth, they have been introduced and motivated heuristically. Most subsequent measures are refinements of various weighting and averaging schemes that change the underlying algorithm but do not provide theoretical economic underpinning. Interpretations of these measures relate them to support vector machines, clustering algorithms or log-supermodularity but they often focus on one side of the location-product pairings, and try to give meaning to either the location measure or the products measure.

In this talk, Muhammed Yıldırım will show a surprisingly simple maximum likelihood function that gives rise to ECI and PCI simultaneously and interpret the meaning of these measures in that light. He will provide a simple Ricardian framework that results in these values and then introduce the Production Ability and Product Sophistication measures (Bustos & Yildirim, 2022) that are motivated by a capability based maximum-likelihood approach.

About the speaker

Muhammed A. Yıldırım is the Research Director for the Growth Lab at Harvard’s Center for International Development (CID) and a faculty member (on leave) in Department of Economics at Koç University in Istanbul. He obtained his Ph.D. in Applied Physics from Harvard University and BS degree from California Institute of Technology. After his graduate studies, he was a postdoctoral fellow at the Growth Lab between 2011 and 2014. His research is focused on understanding network and spillover effects in a multitude of research areas including economic complexity, global value chains, production networks, industrial policy, international trade, productivity, economic growth, and matching.

His research has appeared in high-impact economics and business journals (e.g., Theoretical Economics, Journal of Economic Theory, Research Policy, and Nature Communications) as well as science journals (e.g., Science, Nature, Cell, Nature Biotechnology and Nature Methods). He is also a co-author of the widely influential The Atlas of Economic Complexity, published by the MIT Press. His research has been highlighted in the press, including the New York Times, Financial Times and the Wall Street Journal.