Maximum entropy justification for an economical performance indicator

The gross domestic product is no longer as widely accepted as an indicator of economical performance as it once was, so the search for a replacement or additional indicators has begun. It was shown by Hidalgo and Hausmann, and in later research by Pietronero and others, that the network of international trade carries intrinsical information about economical competitiveness. This idea is based on the observation that strong economies have diverse production capabilities. We have been able to reproduce their results. However, we found that in deciding what trade links are relevant for the analysis, the filter of choice (the revealed comparative advantage) is flawed, as it lacks any statistical justification. We have devised a way to choose only the relevant trade links, justified by Fermi-Dirac statistics through the application of the concept of entropy on the network. With this technique, we show that although the basic idea is still valid, the results by previous authors have to be...Show moreThe gross domestic product is no longer as widely accepted as an indicator of economical performance as it once was, so the search for a replacement or additional indicators has begun. It was shown by Hidalgo and Hausmann, and in later research by Pietronero and others, that the network of international trade carries intrinsical information about economical competitiveness. This idea is based on the observation that strong economies have diverse production capabilities. We have been able to reproduce their results. However, we found that in deciding what trade links are relevant for the analysis, the filter of choice (the revealed comparative advantage) is flawed, as it lacks any statistical justification. We have devised a way to choose only the relevant trade links, justified by Fermi-Dirac statistics through the application of the concept of entropy on the network. With this technique, we show that although the basic idea is still valid, the results by previous authors have to be revised. More importantly, with this new statistical information, we are able to provide countries with an advice on investment strategies for particular industries.Show less

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Maximum entropy justification for an economical performance indicator