The new paradigm of economic complexity

Pierre-Alexandre Balland, Tom Broekel, Dario Diodato, Elisa Giuliani, Ricardo Hausmann, Neave O’Clery, and David Rigby (2022), Research Policy Vol.51(3)

Economic complexity offers a potentially powerful paradigm to understand key societal issues and challenges of our time. The underlying idea is that growth, development, technological change, income inequality, spatial disparities, and resilience are the visible outcomes of hidden systemic interactions. The study of economic complexity seeks to understand the structure of these interactions and how they shape various socioeconomic processes. This emerging field relies heavily on big data and machine learning techniques. This brief introduction to economic complexity has three aims. The first is to summarize key theoretical foundations and principles of economic complexity. The second is to briefly review the tools and metrics developed in the economic complexity literature that exploit information encoded in the structure of the economy to find new empirical patterns. The final aim is to highlight the insights from economic complexity to improve prediction and political decision-making. Institutions including the World Bank, the European Commission, the World Economic Forum, the OECD, and a range of national and regional organizations have begun to embrace the principles of economic complexity and its analytical framework. We discuss policy implications of this field, in particular the usefulness of building recommendation systems for major public investment decisions in a complex world.

Identifying labour market bottlenecks in the energy transition: a combined IO-matching analysis

Maureen Lankhuizen, Dario Diodato, Anet Weterings, Olga Ivanova and Mark Thissen (2022), Economic Systems Research

This paper combines an input–output model and a novel regional labour market matching model in order to identify potential bottlenecks in regional labour markets resulting from shocks in demand caused by the energy transition. Identifying these bottlenecks provides relevant information for policymakers to determine in which regions and industries policy intervention in labour markets may be needed to ensure a smooth transformation. We analyse the effects of a shock that is illustrative for the energy transition in the Netherlands. Our results indicate that the aim of the Dutch government to substantially reduce greenhouse gas emissions may, at least in the short run, be hampered by bottlenecks in labour markets.

Migration and invention in the age of mass migration

Andrea Morrison, Sergio Petralia, and Dario Diodato (2022),  Journal of Economic Geography Vol.22(2)

More than 30 million people migrated to the USA between late-ninetieth and early-twentieth century, and thousands became inventors. Drawing on a novel dataset of immigrant inventors in the USA, we assess the city-level impact of immigrants’ patenting and their contribution to the technological specialization of the receiving US regions between 1870 and 1940. Our results show that native inventors benefited from the inventive activity of immigrants. In addition, we show that the knowledge transferred by immigrants gave rise to new and previously not exiting technological fields in the US regions where immigrants moved to.

 

Why do industries coagglomerate? How Marshallian externalities differ by industry and have evolved over time

Dario Diodato, Frank Neffke, and Neave O’Clery (2018), Journal of Urban Economics Vol.106. 1-26.

The fact that firms benefit from close proximity to other firms with which they can exchange inputs, skilled labor or know-how helps explain why many industrial clusters are so successful. Studying the evolution of coagglomeration patterns, we show that the type of agglomeration that benefits firms has drastically changed over the course of a century and differs markedly across industries. Whereas, at the beginning of the twentieth century, industries tended to colocate with their value chain partners, in more recent decades the importance of this channel has declined and colocation seems to be driven more by similarities in industries’ skill requirements. By calculating industry-specific Marshallian agglomeration forces, we are able to show that, today, skill-sharing is the most salient motive behind the location choices of services, whereas value chain linkages still explain much of the colocation patterns in manufacturing. Moreover, the estimated degrees to which labor and input-output linkages are reflected in an industry’s coagglomeration patterns help improve predictions of city-industry employment growth.

The made-in effect and leapfrogging: A model of leadership change for products with country-of-origin bias

Dario Diodato, Franco Malerba, and Andrea Morrison (2018),  European Economic Review Vol.101. 297-329.

Change in industrial leadership is often explained in terms of technological and costs advantages. However firms in emerging economies not only have to produce high quality, cost-competitive goods, but also win the resistance of consumers in the world market, who are often adverse to purchasing products from countries that yet have to build a reputation. We argue that this country-of-origin bias significantly influences the chances of leadership change.
A model that aims at capturing the endogenous dynamics of demand building and leapfrogging is proposed. We show that in sectors with high monopoly power acquiring a superior technology is not sufficient for a latecomer country to become leader, unless a significant share of consumers is aware of the quality of its products. An extension of the model to multiple sectors shows that a latecomer country remains specialized into low-value undifferentiated goods, even after overtaking the technology of the leading country.

The resilience of regional labour markets to economic shocks: Exploring the role of interactions among firms and workers

Dario Diodato and Anet Weterings (2015), Journal of Economic Geography  Vol.15-4. 723-742.

To date, theoretical and empirical insights in the determinants of regional resilience are still limited. Using a model, we explore how three regional factors jointly contribute to the resilience of regional labour markets to economic shocks. The localization of the supply network (1) is used to model the propagation of the shock, while possibilities for intersectoral (2) and interregional labour mobility (3) to analyse the recovery. An application of the model to Dutch data suggests that labour markets in centrally located and service-oriented regions have, on average, a higher recovery speed, irrespective of the type of shock hitting the economy.

The magnitude and distance decay for trade in goods and services: New evidence for European countries

Martijn Burger, Mark Thissen, Frank van Oort, and Dario Diodato (2014), Spatial Economic Analysis Vol.9-3. 231-259.

Using a newly assembled, consistent and disaggregated dataset (12 goods and 7 services) on internal and bilateral trade for 25 European countries, we analyse the difference between trade in goods and services. The measurement of both trade in goods and trade in services is improved over earlier research, allowing us to compare trade in goods and services in a coherent and systematic way. First, our dataset is made consistent with the domestic demand and production and the total exports and imports at the sector and product levels. Second, we explicitly control for re-exports. We find that, although goods are more often bilaterally traded than services, the volume of bilateral trade in services does not attenuate less with distance than the volume of bilateral trade in goods.