Technological complexity and economic development

• Published date: 01 May 2020
• Author: Daniel Nepelski,Giuditta De Prato
• Date: 01 May 2020
• DOI: http://doi.org/10.1111/rode.12650

448

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Rev Dev Econ. 2020;24:448–470.

wileyonlinelibrary.com/journal/rode

Received: 30 June 2015

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Revised: 10 January 2020

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Accepted: 13 January 2020

DOI: 10.1111/rode.12650

REGULAR ARTICLE

Technological complexity and economic

development

DanielNepelski

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GiudittaDe Prato

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction

in any medium, provided the original work is properly cited.

© 2020 The Authors. Review of Development Economics published by John Wiley & Sons Ltd

European Commission, Joint Research

Centre, Seville, Spain

Correspondence

Daniel Nepelski, European Commission,

Joint Research Centre, 41092 Seville,

Spain.

Email: daniel.nepelski@ec.europa.eu;

nepelski@gmx.de

Abstract

Although technological complexity seems to be a crucial

determinant of economic development, it remains insuf-

ficiently explored. Relying on microinformation stored in

individual patent applications and by applying the network

view of countries linked to the technologies they develop,

we create a global technology space and derive complex-

ity measures that position countries in this space. We use

then the measures of technological diversification and the

ubiquity of technologies present in a country’s technology

portfolio as an input to explain the role of technological

complexity in countries’ income and economic develop-

ment. We show that a country’s position in the global tech-

nology space affects its level of income and growth. The

main channel through which it happens is the exclusiveness

and uniqueness of the technological portfolio a country has,

as compared to the remaining countries.

KEYWORDS

diversification, economic development, networks, specialization,

technological complexity, ubiquity

JEL CLASSIFICATION

O57; F1; O11; O14; O3; O4

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449

NEPELSKI aNd dE PRaTO

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INTRODUCTION

Intuitively, technological complexity is a crucial factor and a determinant of development. However, it remains

only implicitly present in the attempts to explain economic growth. Despite obvious differences between the

technological development of countries and their potential consequences for economic development, technol-

ogy is treated in a very general way or its richness is significantly reduced. The main reason behind this is the

difficulty in capturing technological complexity in theoretical models and measuring it empirically.

In this article, we provide a methodology of constructing a global technology space and deriving

complexity measures that position countries in this space. Our measures of technological diversifica-

tion and the ubiquity of technologies present in a country’s technology portfolio are further used as an

input to explain the role of technological complexity in countries’ income and economic development.

Our study is motivated by findings concerning the production structure and its role in economic de-

velopment (Hausmann & Hidalgo, 2010). The logic behind the economic complexity as a driving force

of economic development is straightforward: Countries producing less ubiquitous products are more

likely to achieve higher income and growth. Expecting that the same is true for technological capabilities,

which are a missing link in the analysis of economic complexity framework by Hausmann and Hidalgo

(2010), we extend this framework by creating a global technology space and compute countries’ techno-

logical complexity measures. The main questions we aim to answer in this analysis are: What is the re-

lationship between the level of a country’s technological diversification and the ubiquity of technologies

present in its technology space? How economic development is affected by the complexity of a country’s

technology space? What is the link between technological complexity and the level of growth?

The main contribution of this study is that, by applying the network view of countries linked to the

technologies they develop, we create a global technology space that replicates the system of technological

capabilities. Relying on microinformation stored in individual patent applications, we are able to repre-

sent the richness of the technological structure at the global level without reducing the level of detail.

Consequently, our results show that a country’s technological diversification and the ubiquity of technolo-

gies present in its technology space have positive and negative impacts on income and growth, respectively.

To build the technology space and the subsequent measures of technological complexity, we use

information included in patent applications. In particular, we rely on technological fields to which an

invention corresponds. This information is coded through the International Patent Classification (IPC)

classes. The source of our data is the European Patent Office (EPO) Worldwide Patent Statistical

(PATSTAT) Database, and the time considered spans from 1991 to 2009. The elaboration of indicators

used in the proceeding analysis relies on over 11 million priority patent applications that were filed to

any patent office worldwide. The number of individual IPC codes considered was nearly 30 million.

The article is organized as follows: Section 2 positions the current work among the existing liter-

ature on the issue of technological progress, complexity, and economic development. Section 3 intro-

duces the methodological framework behind the design of the technology space and the technological

complexity measures. Section 4 presents the data used. Section 5 presents the results of empirical

analysis. Section 6 includes robustness checks of the results against alternative measures of techno-

logical complexity. Section 7 concludes.

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RELATED LITERATURE

Our paper builds on the following strands of literature. First, it relates to the large body of research

devoted to the determinants of economic growth. In particular, it seeks to create a link to the at-

tempts of capturing the concept of technology and technological change into the empirical models of