César A. Hidalgo: Achieving Development in World’s Economy through Diversification

César A. Hidalgo was born in Santiago de Chile on December 22nd of 1979. In 1998, he entered the Physics program at the Pontificia Universidad Católica de Chile and successfully graduated on 2003. On August 2004, he entered the Physics PhD program at the University of  Notre Dame and joined the Center for Complex Network Research (CCNR) directed by Laszlo Barabasi. As a member of CCNR and a Notre Dame grad student, he worked at the Center for Cancer Systems Biology at Dana Farber Cancer Institute from Harvard University, between September 2005 and July 2006. He also joined the Center for International Development at Harvard University as a Research Fellow and on September 2009, he was appointed Adjunct Lecturer in Public Policy at the Harvard Kennedy School. He is the Asahi Broadcast Corporation Career Development Professor at the MIT Media Laboratory, Assistant Professor at the Massachusetts Institute of Technology (MIT) Media Laboratory and a faculty associate at Harvard's University Center for International Development. Dr Hidalgo's work focuses on improving the understanding of systems using and developing concepts of complexity, evolution and network science. His areas of application include (i) economic development, where he has pioneered the use of networks to quantify the productive structure of countries and its evolution, (ii) systems biology where he has published work on disease co-morbidity and genetic regulation, and (iii), social systems, where he has worked on human mobility and social network analysis using mobile phone data. Dr. Hidalgo is also a graphic art enthusiast and has published and exposed artwork that uses data collected originally for scientific purposes. 

His Awards:

-Center for Research Computing award for Computational Sciences and Visualization (2008)

-Outstanding Graduate Student Teacher Award for Excellence in Teaching. Kaneb Center, Notre Dame (2007)

-Selected as an outstanding teaching assistant by the American Association of Physics Teachers (2007)

-Nominated for best student paper at the APS March meeting (2007)

- Hellen Kellogg Institute Supplemental Award. Notre Dame, IN (2004-2008)

-Appeared on Marqui's Who is Who in the world. (2006-2008)

-Companionship Award. British High School. Santiago Chile (1995)

His Significant Contributions:

 

1. Graphical Statistical Methods for the Representation of the Human Development Index and its Components

In this paper, Cesar Hidalgo and his group introduce five graphical statistical methods to compare countries level of development relative to other countries and across time. For this, they used seven panels of data on the Human Development Index and its components, containing information on more than 100 countries for more than 35 years. They created visual comparisons of the level of development of countries relative to each other, and across time, through five different visualization techniques: (i) Rankings (ii) Values (iii) Distributions (iv)Visual metaphors (The Development Tree), and (v) networks, by introducing the concepts of Partial Ordering Networks (PON) and Development Reference Groups (DRG). The graphical exploration of both, values and distributions, show a saturation of both the education and life dimensions of the HDI, suggesting a need to extend the definitions of this components to include either more subcomponents, or completely new measures that could help differentiate between countries facing different development challenges. The Development Tree and the Partial Ordering Network, on the other hand, are used to create graphical narratives of countries and regions. The simplicity of the Development Tree makes it an ideal graphical metaphor for branding the HDI in a multilingual setting, whereas Partial Ordering Networks provide a more organic way to group countries according to their levels of development and connect countries to those with similar development challenges. They conclude by arguing that graphical statistical methods could be used to help communicate complex data and concepts through universal cognitive channels that are heretofore underused in the development literature.

 

2. Country Diversification, Product Ubiquity, and Economic Divergence

Countries differ markedly in the diversification of their exports. Products differ in the number of countries that export them, which Hidalgo, together with Ricardo Hausmann, defined as their ubiquity. He documented a new stylized fact in the global pattern of exports: there is a systematic relationship between the diversification of a country's exports and the ubiquity of its products. The two argued that this fact is not implied by current theories of international trade and show that it is not a trivial consequence of the heterogeneity in the level of diversification of countries or of the heterogeneity in the ubiquity of products. They accounted for this stylized fact by constructing a simple model that assumes that each product requires a potentially large number of non-tradable inputs, which they call capabilities, and that a country can only make the products for which it has all the requisite capabilities. Products differ in the number and specific nature of the capabilities they require, as countries differ in the number/nature of capabilities they have. Products that require more capabilities will be accessible to fewer countries (i.e., will be less ubiquitous), while countries that have more capabilities will have what is required to make more products (i.e., will be more diversified). Their model implies that the return to the accumulation of new capabilities increases exponentially with the number of capabilities already available in a country. Moreover, Hidalgo found that the convexity of the increase in diversification associated with the accumulation of a new capability increases when either the total number of capabilities that exist in the world increases or the average complexity of products, defined as the number of capabilities products require, increases. This convexity defines what they termed as a quiescence trap, or a trap of economic stasis: countries with few capabilities will have negligible or no return to the accumulation of more capabilities, while at the same time countries with many capabilities will experience large returns--in terms of increased diversification--to the accumulation of additional capabilities. Cesar calibrated the model to three different sets of empirical data and show that the derived functional forms reproduced the empirically observed distributions of product ubiquity, the relationship between the diversification of countries and the average ubiquity of the products they export, and the distribution of the probability that two products are co-exported. This calibration suggests that the global economy is composed of a relatively large number of capabilities--between 23 and 80, depending on the level of disaggregation of the data--and that products require on average a relatively large fraction of these capabilities in order to be produced. The conclusion of this calibration is that the world exists in a regime where the quiescence trap is strong.

 

3. The Building Blocks of Economic Complexity

For Adam Smith, wealth was related to the division of labor. As people and firms specialize in different activities, economic efficiency increases, suggesting that development is associated with an increase in the number of individual activities and with the complexity that emerges from the interactions between them. Here Cesar and Hausmann developed a view of economic growth and development that gives a central role to the complexity of a country's economy by interpreting trade data as a bipartite network in which countries are connected to the products they export, and showed that it is possible to quantify the complexity of a country's economy by characterizing the structure of this network. Furthermore, they showed that the measures of complexity they derived are correlated with a country's level of income, and that deviations from this relationship are predictive of future growth. This suggests that countries tend to converge to the level of income dictated by the complexity of their productive structures, indicating that development efforts should focus on generating the conditions that would allow complexity to emerge in order to generate sustained growth and prosperity.

4. The Product Space Conditions and the Development of Nations

 

Economies grow by upgrading the type of products they produce and export. The technology, capital, institutions and skills needed to make such new products are more easily adapted from some products than others. Hidalgo and his colleagues studied the network of relatedness between products, or product space, finding that most upscale products are located in a densely connected core while lower income products occupy a less connected periphery. He showed that countries tend to move to goods close to those they are currently specialized in, allowing nations located in more connected parts of the product space to upgrade their exports basket more quickly. Most countries can reach the core only if they jump over empirically infrequent distances in the product space. This may help explain why poor countries have trouble developing more competitive exports, failing to converge to the income levels of rich countries.

Our Corner:

Hidalgo’s works are truly remarkable and has made a great impact on the world’s economy through diversification. With his studies, we can now visualize the differences between national economies in new ways. Hidalgo, as a statistical physicist, was fascinated by the structure of networks, and along with his colleagues, he has been developing tools designed to study not just economic wealth but also economic structure and sophistication.

For a country to be globally competitive, it must initially face a lot of challenges but with the help of Hidalgo’s diversification of outputs and inputs, we can easily assess the almost impossible task of categorizing inputs. He was able to conclude that different countries will adapt to a changing world economy if they would learn how to increase and diversify their inputs, thus competing with different countries that produce the same products as theirs. Moreover, if the best predictor of a country on its future economic health is the diversity of its production capacity, then such country can increase its adaptation capability in a complex and dynamic global economy and can easily follow whatever the trend in global economy is. Thus, a country can predict its economic health that will lead to the prosperity of that country.--

DGD