A New and Stable Estimation Method of Country Economic Fitness and Product Complexity

Abstract

We present a new metric estimating fitness of countries and complexity of products by exploiting a non-linear non-homogeneous map applied to the publicly available information on the goods exported by a country. The non homogeneous terms guarantee both convergence and stability. After a suitable rescaling of the relevant quantities, the non homogeneous terms are eventually set to zero so that this new metric is parameter free. This new map almost reproduces the results of the original homogeneous metrics already defined in literature and allows for an approximate analytic solution in case of actual binarized matrices based on the Revealed Comparative Advantage (RCA) indicator. This solution is connected with a new quantity describing the neighborhood of nodes in bipartite graphs, representing in this work the relations between countries and exported products. Moreover, we define the new indicator of country net-efficiency quantifying how a country efficiently invests in capabilities able to generate innovative complex high quality products. Eventually, we demonstrate analytically the local convergence of the algorithm involved.

Entropic measure unveils country competitiveness and product specialization in the World trade web

“…2 . Here the rankings of that approach were obtained by use of the full 6-digit code of the HS7 product classification For sure the fitness method, at this level of resolution can be anticipated to suffer of convergence problems 11 , which in fact were already encountered at the four digit level 10 . Instability issues of the algorithm impose to cut somehow arbitrarily the number of iterations in this case.…”

“…1 poses problems of interpretation 9 , while the methods of Refs. 2 have been shown to suffer poor convergence 10 requiring substantial reformulations 11 . In addition, most implementations so far make use of binarizations of the bipartite network linking countries to products.…”

The Economic Fitness of Nations in Value Added. 2000-2014

“…Specifically, they provide theoretical and empirical evidence on the intrinsic instability of the non -linear definition of the algorithm behind the concept of Fitness. However, Servedio et al (2018) present an adjusted and stable metric of Fitness and complexity through a non-linear and non-homogeneous map applied to the available information on country exports. According to the authors, the nonhomogeneous estimates guarantee convergence and stability.…”

Urbanization and Economic Complexity

“…Starting from this theory, we analyze the WTW to explore the mutual relationship between the urbanization of the countries and their economic production structure using the Economic Complexity (EC) framework. Economic Complexity, [19][20][21][22][23][24][25][26] is a new and expanding field in the economic analysis, which proposes "Fitness" and "Complexity" metrics to quantify the fitness or competitiveness of countries and the complexity of products from a country's basket of exports. The main focus of EC is based on a bipartite representation of the World Trade Web where the nodes represent the set of world-countries and the set of exported products defined as different entities.…”