More on Cesar Hidalgo's Works

Cesar Hidalgo’s research focuses on the dynamical aspects of social and biological phenomena. He specialized in the analysis of large data sets in an empirically driven approach to understand the interplay between the structure and the dynamics of the networks defined by systems. His current research agenda at Harvard University focuses mainly in the study of economic development from the perspective of complexity and network science. In particular, he studies the evolution of countries’ productive structures, both empirically and theoretically, by looking at how the development process is shaped by the similarity between a country’s products and the capabilities that go into producing them.

The CID Working Paper No. 201 of Ricardo Hausmann and Cesar Hidalgo entitled Country diversification, product ubiquity, and economic divergence studies the characteristics of the relationship between products and countries that make them. They were able to document a new stylized fact in the global pattern of exports: that there is a systematic relationship between the diversification of a country’s exports and the ubiquity of its products. Such relationship cannot be explained simply by distribution of diversification of countries or by the distribution of the ubiquity of products, but speaks to a more fundamental link between the two. This fact, according to them, is not implied by current theories of international trade. They provided a model for such link which assumes that each product requires a varied and potentially large set of different complementary non-tradable inputs called capabilities.

Countries differ in the number of capabilities that are present in their territory while products differ in the number of capabilities they require. As a consequence, countries with more capabilities will be more diversified, and products that require more capabilities will be accessible to fewer countries, and hence will be less ubiquitous. The model also implies that the return to the accumulation of new capabilities increases exponentially (2^Na to be exact) with the number of capabilities already available in a country.

Moreover, they found out that the convexity of the increase in diversification associated with the accumulation of a new capability increases when either the total number of capabilities that exist in the world increases or the average complexity of products, defined as the number of capabilities products require, increases.

This convexity defines what they termed as quiescence trap, or a trap of economic stasis: countries with few capabilities will have negligible or no return to the accumulation of more capabilities, while at the same time countries with many capabilities will experience large returns – in terms of increased diversification – to the accumulation of additional capabilities.

The model is calibrated to three data sets. It showed that the derived functional forms reproduce the empirically observed distributions of product ubiquity, the relationship between the diversification of countries and the average ubiquity of the products they export, and the distribution of the probability that two products are co-exported. This calibration shows that the global economy is composed of a large number of capabilities – between 23 and 80, depending on the level of disaggregation of the data – and that products require on average a relatively large fraction of these capabilities in order to be produced. The conclusion of this calibration is that the world exists in a regime where the quiescence trap is strong.