International Economic Complexity

Nowadays the whole world is connected. Products we can buy at the convenience store are manufactured miles away of our homes. We can buy online things we otherwise could only get far away in their local country. And this enables us to be able to have tomatoes all year around, independent of the freezing temperatures outside.

But not everyone of us understands how deeply interconnected this whole system is, and what is needed for a country to have a neutral balance between imports and exports. It is understood that a country has a healthy economy when it doesn't buy more products from abroad than what it sells, but how can it be measured?

Trying to answer this question, I found a site that allows to assess the Economic Complexity of every country, it is http://atlas.media.mit.edu. It is a great tool to visualize and quantify the economic complexity of every country.

Let's start reviewing just a few facts from a couple of countries.

United States

• United States' imports are higher than its exports, with $1.8T vs. $1.23T respectively.
• Looking into specific products, both the most imported and most exported items are cars. 
• United States exports the most to Canada, Mexico, China, Japan and Germany (in decreasing order)
• Unites States imports the most from China, Mexico, Canada, Japan and Germany (in decreasing order)

China

• China exports $2.12T, and imports only $1.41T. 
• The most exported product is computers, the most imported is crude petroleum. 
• China exports the most to United States, Hong Kong, Japan, Germany, and South Korea. 
• China imports the most from Japan, South Korea, United States, and Germany

Germany

• Germany imports $1.09T, and exports $1.32T
• The most exported product is cars, the most imported is crude petroleum
• Germany exports the most to France, United States, China, United Kingdom, Netherlands
• Germany imports the most from Netherlands, China, France, United States, and Italy

Japan

• Japan imports $793B, and exports $749B
• The most exported item is cars, and the most imported is crude petroleum
• Japan exports the most to China, United States. South Korea and Thailand
• Japan imports the most from China, United States, Australia, Saudi Arabia, and South Korea

Mexico

• Mexico imports $295B, and exports $349B
• The most exported product is crude petroleum, the most imported is broadcasting accessories
• Mexico exports the most to United States, Canada, Spain, China and Colombia
• Mexico imports the most from United States, China, Japan, Germany and South Korea

Spain

• Spain imports $319B, and exports $270B
• The most exported product is cars, the most imported is crude petroleum
• Spain exports the most to France, Germany, Italy, Portugal and the United Kingdom
• Spain imports the most from Germany, France, China, Italy and Netherlands

This can go on forever, but let's stop right here.

• One observation is the fact that a country doesn't import from the same countries that it exports to. For example, Chinese products are within the top 5 imported items in all countries analyzed.
• Another important consideration is that 4 of the countries have cars as the most exported items. In total, the top 5 countries exporting cars are Germany, Japan, United States, Canada and South Korea.
• Also four have crude petroleum as first imported product. In fact, there are not many countries exporting petroleum, the top 5 in the world are Russia, Saudi Arabia, Nigeria, Canada and Norway.
• The third point to consider is the balance between the imported and exported amount. In a commercial world, the country that exports more than it imports, has a "positive income". Of course, this doesn't consider previous debts that the country may have, but having a surplus, like China, Mexico or Germany can only be better than having a deficit, like US, Japan and Spain.
• Products like cars, petroleum or computers involve many sub-products needed for its production, manufacturing etc. For instance, manufacturing cars involve vehicle parts, iron sheets, electrical equipment, and textile fabrics, etc. At the same time, textile fabrics can be used for other purposes, for example rubber materials. This means that if a country is to import textile fabrics, it can be used for several purposes, which interconnects the production within a country. 

In fact, the image below shows "the product space". The products are colored depending on the industry. The products located more in the middle are more complex and require more connections (like machinery), the products in the edges are simpler (like cereals). Every country has a "product tree" like this one that represents the product space in this country during a specific year. Over the years, the trees would look differently, depending on the products developed in the country.

The economic system is so complex that just looking at the whole connections that a product has, it seems impossible to understand it even superficially. Even if you just try to focus on one specific industry, it won't be possible, because it will have connections with other industries or products. But this site really helps for the visualization.

Reading the part of the atlas, it is explained why the economic complexity is needed to maintain a country economically competitive. And it is related to how the country creates an efficient structure of industries that holds and combines the knowledge. According to this, it is not good for a country to focus on one product, but rather be connected to as many products as possible. Another aim is to be connected to products that are less ubiquitous, since their production implies more knowledge. Below you can see the world map colored with the Economic Complexity Index (ECI) ranking. The most red-colored countries have a higher economic complexity than the more yellow-colored.

This map doesn't only show the countries with more knowledge because they have more means (higher GPD), but it also implies that high-ranked countries tend to grow faster than those that are “too rich” for their current level of economic complexity. In this sense, economic complexity is not just a symptom or an expression of prosperity: it is a driver. In short, economic complexity matters because it helps explain differences in the level of income of countries, and more important, because it predicts future economic growth. 

The book even makes predictions for the economic complexity in 2020. The map then looks drastically different.

Well, I will leave it at this point, since it is confusing enough already, but the report goes on to show the ECI ranking over the years, really interesting.

I hope this useful information wasn't too boring, I think it is an interesting point of view, and it helps understand though visual representation the complexity of the country's economic potential.

Thanks for reading, 

Lita & Andres