Development: mapping opportunity and innovation

What drives economic development? Although divergent views exist, an emerging perspective focuses on the role of know-how and tacit knowledge in the diversification of countries through the emergence of sophisticated economic activities (Hausmann, Hidalgo et al). From this viewpoint, countries develop as they acquire know-how or ‘capabilities’, and learn to combine these capabilities in order to move into new, more complex economic activities.

This simple hypothesis gives rise to a notion of path dependence that may be modelled using a network where nodes represent industries and edges represent capability overlap. This network can be seen as describing the opportunity landscape: where a particular place is located in this network (i.e., its industries) will determine its future diversification potential. A place with industries located in a central well-connected part of the network has many options, but one with only few peripheral industries has limited opportunities.

Explore online tools to discover diversification paths for nations, and cities and states in Colombia and Mexico, developed at the Center for International Development at Harvard University. 

While the capabilities-based view of economic growth has gain significant traction in both academic and development policy circles, there remain many challenges in building realistic economic models which measure such processes – not least because ‘capabilities’ are not directly observable. Some of my recent work [1] has focused on deriving a probabilistic model for the capability accumulation and diversification of nations, and uses export data to empirically estimate directed development paths. Other work has examined this path dependent development process in different contects, including the Republic of Ireland [2].

  1. O’Clery N, Yildirim M & Hausmann R (2016) Exploring Paths to Export Diversification: A Network Interpretation of Heckscher-Ohlin & Learning-by-doing. Royal Economic Society Conference, University of Sussex.
  2. O’Clery N (2015) A Tale of Two Clusters: The Evolution of Ireland’s Economic Complexity since 1995. Journal of the Statistical and Social Inquiry Society of Ireland, One Hundred and Sixty-Eight Session