Global Economics Gets a Facelift With The Atlas of Economic Complexity
Economists Ricardo Hausmann and César Hidalgo released their Atlas of Economic Complexity at the Harvard Center for International Development on Thursday. The 300-plus page atlas is unlike any you’ve seen before—it doesn’t inform readers where they are geographically, and it won’t be any help when charting pan-continental adventures. But from an economic perspective, the atlas will tell readers where their countries rank in terms of productivity—and, most astonishingly, where it will be in 10 years.
It’s not a crystal ball, but it could very well be a map for global investment over the next decade. Plus, it sure is pretty to look at.
The atlas starts with the idea that the wealth and potential of nations is derived from productive knowledge. To maximize collective knowledge, a nation needs to connect its individual citizens, each of whom can benefit the whole. The more complex and interconnected a nation, the greater its economic productivity and potential. The atlas visualizes the economic complexity of 128 countries and foresees the expected GDP growth for each between 2009 and 2020, using what Hausmann and Hidalgo call the Index of Economic Complexity. Producing a wide variety of goods boosts a nation's rank on the ECI because it gives the country the potential to make even more (and more advanced) products. For example, a country that manufactures lithium batteries can soon expand into making computers, cell phones, or electric cars.
By this measure, Uganda has the most potential of any country in the world, followed by Kenya, Tanzania, Zimbabwe, and Madagascar. The United States ranks at 88, comfortably mid-pack, but well-behind rival China at 20. This makes sense—the countries with the most potential are often ones that are starting from near the bottom in current GDP.
By using vibrant visualizations, Haussman hopes that the atlas will draw in investors, economists, governments, corporations, and the average reader. Each nation’s connectivity can be visualized on a complex and colorful web that links areas of production. The potential of the atlas lies in these connections: In just one glance, a reader can see the current areas of production and those within reach, thus understanding where potential investments or development efforts should focus.
All told, the atlas has more colors than that 20-year-old one you have sitting under a stack of archived issues of National Geographic, and the views of the world it presents is just as vibrant. The book is slated for a future release in print, but if you’re looking a new economic view of the world, visit the online visualizer.
All images courtesy of Atlas.media.mit.edu
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Evolution of nations' ECI ranking of countries between 1964 and 2008.
National presence in the global product space is shown on each country's page by black boxes around each branch of the product space a country operates in.
GOOD: How do you hope the atlas will be used, by governments, economists, individuals?
Ricardo Hausmann: We hope that it will be used not just by governments, but by investors, by investment companies. The atlas allows a country to know what it could be doing that it’s not doing now, and it allows investors develop cases that they would not have otherwise thought about.
GOOD: How has the atlas been received?
Hausmann: We launched the Atlas [on Thursday] in the context of the Global Empowerment Meeting at the Harvard Center for International Development. The participants were split into different countries—China, Columbia, Peru, South Africa, etc.—and they were challenged to come up with an investment they wanted to identify, share an argument for, and pitch it to a set of investors.
It was very interesting to see how people were able to use the atlas to ponder what makes sense as the next product for their country, and to build the case from the data. It was a very successful exercise. It convinced us that individuals could make sense of it and use it without full knowledge of the calculations. The beauty of the information is that you don’t need to be aware of all the complex calculations that are behind the graphical things; you can do it yourself. You can use the outcome of these calculations and the visual presentation of the calculations to explore the space yourself and make decisions that have incredible economic value.
GOOD: How did you first visualize the concept of ‘product space’?
Hausmann: We asked ‘where do these kind of things, or products, come from? A metaphor I like to use is a forest. Products are like trees in the forest, the set of all possible products is the entire forest. The forest is irregular; there are parts of the forest where trees are close together, there are others where trees are very scarce. This is very much like a product space, some products go into production together, they fit very nicely. Others are much more isolated.
A country is the collection of monkeys that live on certain trees and take from those trees. The question of development depends on how the monkeys colonize the forest. When monkeys to move from trees, they tend to move out from certain areas to others and gradual populate the forest. We wanted to map the forest so that the monkeys could populate the forest more easily and efficiently. Especially the better parts of the forest. So that countries could see, or have a map, of where they exist in the product space and where it is most efficient for them to move towards.
GOOD: What was the process behind the design?
Ricardo Hausmann: We believe that in the process of development, complexity increases. In terms of how complexity needs to be captured, the more complex the description, the more information you need to express.
Our brains have been processing letters, symbols, and numbers for the last 10,000 years, but as animals, our ancestors have, for millions of years, been developing the eyes and the visual cortex of the brain. The eyes are able to process visualized information much more quickly then they can process symbols. We tried to express very complex information in a way as visual possible, so that we can use the most efficient parts of the brain as opposed to the inefficient.
A computer can beat a human at chess, at calculations. But a computer has enormous difficulty recognizing a face. A human can do that without thinking.
GOOD: What do you consider the most important value added from the atlas?
Hausmann: We believe that countries can grow by making more things and more complex things, but the process of growth of learning to make more and complex things is rife with problems. There is no learning by doing, from the things you are not doing, it’s hard to learn about the things you are not doing, and there is no reason to learn from industries that do not exist.
For example, it’s hard to become a watchmaker if your country has no watch industry. The atlas provides a visualization of what countries already know how to do, and what industries and products are within reach of those industries, creating a map for growth.
Countries like Saudi Arabia perform poorly on the index, because they manufacture few products and the potential for growth and complexity is very low.
“Ultimately, the complexity of an economy is related to the multiplicity of useful knowledge embedded in it," the authors write in the atlas. "Countries whose economic complexity is greater than what we would expect, given their level of income, tend to grow faster than those that are “too rich” for their current level of economic complexity. In this sense, economic complexity is not just a symptom or an expression of prosperity: it is a driver.”
Saudi Arabia's production table shows very little diversity, or complexity, in the country's production.
“In short, economic complexity matters because it helps explain differences in the level of income of countries, and more important, because it predicts future economic growth," the study says. "Economic complexity might not be simple to accomplish, but the countries that do achieve it tend to reap important rewards.”