Unit 4 Macro: How Countries Grow

 The nature of A2 economics specifications is that they lag interesting and important developments in the subject much of which are directly relevant to what students are taught in the classroom. The role of complexity in understanding how and why countries grow is one such example and I have blogged before about the work of Cesar Hidalgo and Richard Hausmann through the Observatory of Economic Complexity - see "Teaching Trade in a Different Way"

 It is a joy to find the Financial Times covering some of their ideas in a brace of short videos as part of the John Authers Daily Note. You can always find these clips on the FT's You Tube Channel and I strongly recommend this for ambitious and enthusiastic students.

Nations rich in transferable skills have more economic growth potential than those that merely exploit their natural resources, according to Harvard's Ricardo Hausmann. What drives growth is societal knowledge - what is it that a society knows how to produce. The more complex a product the wider the spread of different skills that need to be mobilized to create a competitive industry.

Capabilities rather than a narrow conception of capital takes precedence in the work of Hidalgo and Hausmann - development is about the accumulation of a large set of capabilities that results in the ability to produce a wider range of complex products - few countries can make these and this is a key factor between those countries that grow rich and those that struggle to make another decisive development leap.

Natural resource products tend to be separated from other products in a map of complexity. Countries rich in oil and gas tend to have few neighbours - making it difficult to move resources out of exploration and extraction of these natural resources and into more complex manufactured goods when economic conditions / world prices change

According to Hausmann - "economic complexity is a measure of the amount of capabilities and know-how that goes into the production of any given product. Products are vehicles for knowledge. The theory and supporting empirical evidence explains why the accumulation of productive knowledge is the key to sustained economic growth." Growth can be stimulated by bringing people with know-how together and in creating networks of businesses who can collaborate with their diversified know-how.

Part one of the discussion

More reading / background

Richard Hausmann - Building Blocks of Economic Complexity

Part Two of the Discussion