Proceedings of the 5th Economic & Finance Conference, Miami

WHAT THE LAW OF COMPARATIVE ADVANTAGE MISSES IN AFRICA: A NEW MEASURE OF ECONOMIC COMPLEXITY

CRAIG RICHARDSON

Abstract:

Africa is often referred to as if it were a country. This perspective flattens the understanding of a complex and highly varied set of 54 countries with widely different GDP growth rates and underlying economic complexities. More economically complex countries are able to sustain external commodity price shocks, a factor Ricardo did not consider in his famous law. A method is developed in this paper to better assess a country's economic complexity, modeled after the Herfindahl Index which is widely used in measures of market structure. Data from the MIT/Harvard Atlas of Economic Complexity is used to construct a new economic complexity index that can better track a country's move towards improved business environments. This paper argues that high GDP growth, particularly in African countries, may mask exports of a single crude commodity which is subject to volatile price changes, and hence rocky macroeconomic output.

Keywords: Africa, Comparative Advantage, GDP growth, Economic Complexity

DOI: 10.20472/EFC.2016.005.024

PDF: Download