🗓️ Session 9: Technology Gaps, Innovation Systems, and Economic Complexity
Abstract
Why do some economies move into high-complexity manufacturing while others remain locked in commodity exports — even when they start from similar positions? This session answers that question through the Neo-Schumpeterian and evolutionary economics tradition, which argues that persistent international inequality is driven by structural differences in technological capabilities rather than by factor endowments or institutional quality alone.
We begin by identifying what dependency theory leaves unexplained at the micro-level, and show how the technology gap literature fills this gap: capabilities are tacit and cumulative, innovation is path-dependent, and falling behind reduces the capacity to catch up. A key empirical regularity — the Kaldor paradox — illustrates that it is technological competitiveness, not wage costs, that drives long-run export success (Dosi, Grazzi & Moschella 2015).
We then introduce National Innovation Systems (NIS) as the institutional framework through which capability building occurs, and the Product Space and Economic Complexity Index as contemporary measurement tools that make the structure of productive knowledge visible in trade data.
The case study contrasts South Korea and Brazil: starting from comparable positions in 1960, South Korea pursued deliberate, sequential moves through the product space while Brazil remained in the commodity periphery. The session closes with a critical discussion of the NIS approach — its Eurocentric assumptions, its weak theory of the state, and its neglect of the global power constraints that dependency theory foregrounds.
🖥️ Lecture Slides
The slides will be made available here after the lecture.
📚 Mandatory Reading
- Dosi, Grazzi & Moschella (2015), “Technology and Costs in International Competitiveness: From Countries and Sectors to Firms”.
- Contains an excellent and concise theoretical introduction to the technology gap approach; then shows how empirical evidence for the central role of technology as a determinant for export success looks like.
- Hidalgo (2021), “Economic Complexity Theory and Applications”.
- Recent overview over the current state of the economic complexity approach — and how it transcends disciplinary boundaries; the formal elaborations can be skipped.
🏆 Further Readings
- Aistleitner, Gräbner & Hornykewycz (2021), “Theory and Empirics of Capability Accumulation: Implications for Macroeconomic Modeling”.
- Elaborates on the different mechanisms of capability accumulation and why a multi-level perspective is essential.
- Hidalgo (2023), “The Policy Implications of Economic Complexity”.
- Good overview regarding the policy implications of the complexity approach.
- Hidalgo, Klinger, Barabási & Hausmann (2007), “The Product Space Conditions the Development of Nations”.
- The classical and still very well-readable introduction of the product space idea.
- Lee & Malerba (2017), “Catch-Up Cycles and Changes in Industrial Leadership: Windows of Opportunity and Responses of Firms and Countries”.
- Focuses on when late-comers can leapfrog and contains interesting elaborations on the Korea example from the lecture.
- Fagerberg & Srholec (2008), “National Innovation Systems, Capabilities and Economic Development”.
- Nice overview over the NIS literature and its approach; the empirical approach is a bit dated but still an interesting read.
- Reinert (2007), How Rich Countries Got Rich and Why Poor Countries Stay Poor.
- Very comprehensive, and historically reflected study on comparative development, which takes many innovation arguments seriously, but complements them nicely with structuralist theory.
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