Product Complexity: Introduction
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Product ComplexityA characteristic of exported (or imported) products that captures the sophistication of the production capabilities needed to produce and sell the product successfully in international markets. More complex products generally offer larger opportunities to capture value added. We calculate product complexity using the so-called ECI method.captures the diversity and sophistication of the productive knowledge needed to produce a particular product and sell it with comparative advantage in international markets.
- The complexity of the set of products exported successfully by an economy provides an indicator of the capabilities that are present in the firms located in the economy.
- The complexity indicator is calculated using the up-to-date implementation of ECI indicator originally developed by
César A. Hidalgo and Ricardo Hausmann.See: Hidalgo, C., and R. Hausmann, 2009, The Building Blocks of Economic Complexity, Proceedings of the National Academy of Sciences 106(26):10570–75
and Hidalgo, C.A., 2021, Economic complexity theory and applications. Nat Rev Phys 3, 92–113
Basic Complexity Indicators and Upgrading
- Product complexity is calculated using detailed data on exports by products
- The database provides a number of basic indicators about the complexity of products exported by an economy, and its diversification
- Product complexity is also used to identify upgrading opportunities for individual economies, i.e., being able to export more complex products.
- Exporting a new product with comparative advantage depends on how the set of new productive capabilities of this product relate to the capabilities embodied in the products already exported with comparative advantage.
- The database identifies the sectors that offer new export opportunities, given the products currently exported with comparative advantage.
Product Complexity and GVCs
- Product complexity is combined with information on
GVCThe production of a single commodity or service can be split into many small parts (this is referred to as fragmentation). When these small parts are performed by separate production locations and/or firms, the production process takes the form of a value chain, with many parties contributing value. When this chain is dispersed over various geographical locations, we speak of a global value chain (GVCs).participation to capture the complexity of the value chain, and the inputs used by the chain (backward linkages), as well as inputs delivered to other value chains (forward linkages).
- This provides an overview of the quality of various contributions to value chains, which is not captured in standard GVC indicators.