New Methods Guide for Economic Complexity Released

- The underlying theory of economic complexity, developed by Ricardo Hausmann of Harvard's Growth Lab and César A. Hidalgo of the University of Toulouse, posits that a society's prosperity is linked to the collective knowledge embedded in its economy. This "know-how" determines the diversity and sophistication of the products and services it can produce. - The European Union utilizes economic complexity principles in its Smart Specialisation Strategy, which is a condition for regions to access the European Regional Development Fund, valued at approximately €200 billion for the 2021-2027 period. This place-based approach requires regions to identify and develop unique areas of economic strength. - A key concept in this field is the "adjacent possible," which identifies potential new products and industries a region can move into based on its existing capabilities. For example, Finland transitioned from a wood-based economy to a technology leader by moving into adjacent fields like wood-cutting machinery and then automated machines. - The Dutch government's National Strategy on Spatial Planning and the Environment (Nationale Omgevingsvisie - NOVI) provides the long-term vision for the living environment, which provinces and municipalities then translate into specific land-use plans for things like new business parks. This decentralized approach gives local authorities significant power in spatial economic decisions. - Recent analysis from the Dutch Ministry of Economic Affairs highlights the increasing spatial pressure in the Netherlands due to population and economic growth, alongside the land requirements for sustainability transitions like renewable energy and the circular economy. This necessitates strategic choices in spatial planning to balance competing demands. - While economic complexity at a national level is correlated with lower wage inequality, studies at the regional level in Europe, including the Netherlands, show a positive relationship between higher economic complexity and greater intra-regional wage inequality. This presents a policy challenge in achieving both economic growth and social inclusion within regions. - Research on Dutch NUTS-3 regions (statistical divisions) indicates that when regions diversify into related but less complex industries, it tends to reduce internal wage inequality. This suggests that inclusive growth strategies might focus on building upon existing capabilities in accessible sectors. - The application of economic complexity extends beyond trade data to include analyses of patents, research papers, and industry presence to map a region's technological and innovation capabilities. This allows for a more nuanced understanding of a region's innovation system when formulating development strategies.