Assessing Economic Complexity with Input-Output Based Measures

2. MEASURES OF INPUT-OUTPUT CONNECTEDNESS

There are several measures of connectedness in input-output analysis. Although not
explicitly made for this purpose, they can be considered as alternative measures of economic
complexity as sectoral interrelatedness. And it is also an interesting exercise per se to rank
economies according to the level of interrelatedness obtained for each of them.

In this section, we present a (not exhaustive) list of measures, from the traditional ones to
some that are more recent and more theoretically elaborate. Most of these measures have
been proposed by authors writing in the field of economics, but there are also some that have
been proposed by biologists and have an ecological content (useful surveys of some of these
measures are to be found in Hamilton and Jensen 1983, Szyrmer 1985, Basu and Johnson
1996, Cai and Leung 2004, Amaral et al. 2007).

One of the first indicators of the connectedness of an input-output system is the
Percentage Intermediate Transactions (M1 - PINT) of Chenery and Watanable (1958),
defined as “the percentage of the production of industries in the economy which is used to
satisfy needs for intermediate inputs”, and defined as:

i Ax

PINT = 100 ^x                            (1)

i'x

where A is the production (technical) coefficients matrix, x is the vector of sectoral gross
outputs, i is a unit vector of appropriate dimension, and ´ means transpose.

Another classical measure of connectedness is the Average Output Multiplier (M2 -
AVOM), based on Rasmussen (1956) and Hirschman (1958):

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