Economic complexity theory and applications

Economic complexity methods have become popular tools in economic geography, international development and innovation studies. Here, I review economic complexity theory and applications, with a particular focus on two streams of literature: the literature on relatedness, which focuses on the evolution of specialization patterns, and the literature on metrics of economic complexity, which uses dimensionality reduction techniques to create metrics of economic sophistication that are predictive of variations in income, economic growth, emissions and income inequality. Economic complexity methods predict changes in the geography of economic activities and explain differences in economic growth, inequality, greenhouse emissions and labour market outcomes. This Review summarizes a decade of research on economic complexity and its applications.