Page 26 - The Atlas of Economic Complexity

MAPPING PATHS TO PROSPERITY | 27

A s we have argued, economic complexity re- economic complexity is greater than what we would

flects the amount of knowledge that is em-
expect, given their level of income, tend to grow faster
than those that are “too rich” for their current level of
bedded in the productive structure of an
economic complexity. In this sense, economic complex-
economy. Seen this way, it is no coincidence
that there is a strong correlation between
ity is not just a symptom or an expression of prosperity:
it is a driver.
our measures of economic complexity and
the income per capita that countries are
Technical Box 3.1 presents the regression that we use to re-
able to generate.
The equation is simple. We regress the growth in per capita
Figure 3.1 illustrates the relationship be-
income over 10-year periods on economic complexity, while
tween the Economic Complexity Index (ECI) and Income per late economic complexity to subsequent economic growth.
capita for the 128 countries studied in this Atlas. Here, we controlling for initial income and for the increase in real
separate countries according to their intensity in natural re- natural resource income experienced during that period. We
source exports. We color in red those countries for which also include an interaction term between initial income per
natural resources, such as minerals, gas and oil, represent at capita and the ECI. The increase in the explanatory power of
least 10% of GDP. For the 75 countries with a limited relative the growth equation that can be attributed to the Economic
presence of natural-resource exports (in blue), economic Complexity Index is at least 15 percentage points, or more
complexity accounts for 75 percent of the variance in in- than a third of the variance explained by the whole equa-
come per capita. But as the Figure 3.1 illustrates, countries tion. Moreover, the size of the estimated effect is large: an
with a large presence of natural resources can be relatively increase of one standard deviation in complexity, which is
rich without being complex. If we control for the income something that Thailand achieved between 1970 and 1985,
that is generated from extractive activities, which has more is associated with a subsequent acceleration of a country’s
to do with geology than knowhow, economic complexity can long-term growth rate of 1.6 percent per year. This is over
explain about 73 percent of the variation in income across and above the growth that would have been expected from
all 128 countries. Figure 3.2 shows the tight relationship mineral wealth and global trends.
between economic complexity and income per capita that The ability of the ECI to predict future economic growth
emerges after we take into account a country’s natural re- suggests that countries tend to move towards an income
source income. level that is compatible with their overall level of embedded
Economic complexity, therefore, is related to a country’s knowhow. On average, their income tends to reflect their
level of prosperity. As such, it is just a correlation of things embedded knowledge. But when it does not, it gets corrected
we care about. The relationship between income and com- through accelerated or diminished growth. The gap between
plexity, however, goes deeper than this. Countries whose a country’s level of income and complexity is the key vari-