How Economic Complexity Explains Which Countries Become Rich

Joe Weisenthal (0:00)

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SPEAKER_2 (0:30)

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Joe Weisenthal (1:11)

Thank Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (1:16)

And I'm Tracy Alloway.

Joe Weisenthal (1:18)

Tracy, I'm super late to everything. First of all, did you play Wordle?

Tracy Alloway (1:23)

I did. I didn't get obsessed with it, like some people did, but I think we were all fairly bored during that time period and on the lookout for any sort of entertainment.

Joe Weisenthal (1:32)

And it never clicked. But I'm always late to everything.

Like a year ago, people were telling me, it's like, oh, you got to play this game, Traddle, and I didn't. But like three or four months ago, I started really getting into it. And I think you're into it now, too.

Tracy Alloway (1:45)

Yeah, I think we both started playing around the same time, probably because we heard about it from the same person. It is a fun game. So for those who don't know, it is like Wordle. It basically presents a sort of graphic schematic of an unnamed country's exports.

And you have to try to guess what country it is.

Joe Weisenthal (2:08)

Yeah, exactly. And I'm not very good at geography, so often it'll say like, OK, you're close, but it's like you have to go 1,500 kilometers to the north west. I'm pretty bad at geography, so I'm not good.

But as playing this game and watching the way the different shapes of different countries export mix, I feel like I've really started to learn things about the world.

Tracy Alloway (2:31)

I have learned so much about the economy of Angola.

Joe Weisenthal (2:34)

Right, so you see a country and it's like 80% of their exports are like coffee and gold, right? Or something like that. And you're like, OK, this is a relatively poor country. It has a lot of growth left to do.

And then you see another country and it's like advanced circuits and medicine and hangers and bananas and all this stuff. And you're like, oh, and you start to see these shapes and these distributions that sort of like tell you things. It's like, OK, I can guess maybe this is in Europe or maybe they have a lot of things. Maybe it's in Eastern Europe. You suddenly sort of learn like how rich countries, goods exports really differ from poorer countries, goods exports.

Tracy Alloway (3:13)

Yeah, totally. There are three clues that it gives you. One is distance, as you just mentioned, and the other is total size of exports. So that gives you an indication of how big or small that economy is.

And then that third thing is the nature of the exports. And it sort of divides them up into different categories. But it gives you a really good snapshot of a country's economy. And as you play the game, you start to recognize, I guess, certain economic export attributes that go with certain types of countries or economies.

Joe Weisenthal (3:49)

Right. So integrated circuits and palm oil, probably Southeast Asia, right? Something like that. Anyway, this game that you and I have become obsessed with, it's sort of based on this work related to economic complexity, the atlas of economic complexity, this sort of idea. And this is something that's come up. It came up in an episode we did with Henry Williams and David Ochs.

It came up in the episode we did with Dan Wong and why some countries can develop airline industries and other countries can't.

This idea that complexity of goods exports, complexity is in itself a sort of predictor of wealth.

Tracy Alloway (4:25)

Yeah, and maybe it's also a desirable model for countries to sort of aspire to. This idea that maybe they want to get away from simply producing a bunch of t-shirts. So like 50% of their economy is t-shirt exports or something like that. They want to get to a place where they have expertise across a broad and value added sort of realm of exports.