What is the fitness of a country?

mappamondoThe industrial capabilities of a country and the goods that a country is able to produce with a comparative advantage are the result of the complex interactions of a large ecosystem of factors. These factors are not simply a matter of know-how, which  can be easily imported from abroad by hiring experts or purchasing technologies; technological know-how can only produce results if it is sown in fertile grounds.

The term fitness recalls ecological concepts and is precisely intended, with respect to national economies, as the ability of a country to compete in the global market. In this respect, the difference is made by how fertile a country is with respect to the creation of new competitive industries.

The competitiveness of countries is usually inferred from a set of features of the country itself, ranging from education, to politics, infrastructures, legislation and so on. The Global Competitiveness Index, issued by the World Economic Forum, is an example of this kind of measure of competitiveness where assorted quantitative assessments of several such factors are combined linearly to form a synthetic index. But, of course, a nation is competitive not just if it has, say, good infrastructures, but if it is able to use those infrastructures to produce competitive products. It is very hard, even in principle, to determine how such factors should be mixed together to achieve the production of a given product: what is the right way to combine kilometres of highways with university ratings and labor market efficiency? Should it be a linear combination? A multiplicative one? Just a weighted average? And do weights depend on the specific product?

The idea behind the concept of economic complexity is to reverse this bottom-up approach, from endowments to competitiveness, and use the output of a country to determine how fertile the economic system is. In other words, to go from the observable exported products to a synthetic estimate of the level of endowments present in the country, that automatically takes their relationships into account.

These ideas are embodied in the concept of fitness. We expect a fertile, or fit country, to be able to produce a diversified set of products, and we expect a product to be produced just by those countries that have at least a minimum level of fitness. Thus a fit country produces many complex products, and a complex product is one that is produced only by a fit country. The two definitions are self-consistent and it is possible to use data on global exports to calculate the fitness of every country and the complexity of every product.

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