How Developing Economies Grow
The best predictor of a country's future economic health is not the magnitude but the diversity of its production capacity, says M.I.T. economist César Hidalgo.
Hidalgo and Hausmann argue that the diversity of a country’s production capacity, and thus the true strength of its economy, depends on the diversity of both its outputs and its inputs. Two countries could export the same number of products—they could have the same diversity of outputs—but if one exports only garments, it’s likely to have many fewer inputs than a country that exports a mix of garments and other light manufacturing, agricultural products, electronics and cultural goods. And the country with more inputs, the researchers claim, will adapt better to a changing world economy.
