Can Globalisation Benefit All? Research Project
Country Capabilities, Product Complexity, and Finance in the EU
Principal Investigator: Dr Claudius Gräbner
Claudius Gräbner is a Research Associate at the Institute for Socio-Economics at the University of Duisburg-Essen (Germany) and the Institute for Comprehensive Analysis of the Economy at the Johannes Kepler University Linz (Austria), as well as a research fellow of the ZOE Institute for Future-Fit Economies. His research is concerned with the effects of globalization and the determinants for international competitiveness, as well as the role of technological change and economic complexity for socio-economic development.
Aside from such applied work he also publishes on the philosophy of economics, in particular on how economic models can create knowledge, and why and under which conditions pluralism in economics is beneficial for the expansion of our understanding of real economies.
This research project studies the extent to which globalisation reinforces structural inequalities between nation states in the Eurozone, and which kind of policies can help to bring about convergence among the member states.
Our starting point is the observation that in recent times of increasing economic openness, inequalities within and between many countries in the Eurozone have increased. We rationalize these developments by referring to the literature on economic complexity according to which economic prosperity requires the collective ability to perform particular economic activities, as evidenced by the production of complex products. In the Eurozone, we observe that poorer countries tend to import such complex products, which are mainly produced and exported by richer countries. We conjecture that these patterns of unequal exchange could be a major driver of polarization because poorer countries get ‘trapped’ in unattractive economic activities (such as the production of simple products).
While the first part of the project uses tools from network science and econometrics to identify and summarise such stylised facts concerning the production structure of richer and poorer countries in the Eurozone. The second (and main) part builds upon these results and develops model that is able to reproduce these stylised facts, and that can be used for policy experiments. This model, which will be both agent-based and stock-flow consistent, will be characterized by at least three distinctive features: first, it will be the first model that explicitly represents the process of accumulation of productive capabilities in countries on the micro level, and how they translate into macro dynamics of economic development. Second, the model is stock-flow consistent and thereby integrates both financial and real trade-related factors to explain polarization in the Eurozone. And third, the model will allow us to simulate policies and regulatory frameworks aiming to rationalize these phenomena and to counter-act intra-Eurozone polarization.
Such an endeavour is necessarily both interdisciplinary and pluralist. We draw on approaches from outside economics as well as on different economic paradigms. To address the lack of an underlying economic and social theory of capability accumulation in the complexity approach to development we triangulate various streams of economic and social thought, including structuralist and dependency theories, Post-Keynesian macroeconomic theory, evolutionary economic theories of innovation and technological change, and concepts and tools from complexity science. The contributions will be integrated under a common meta-theoretical framework, provided by the philosophical concept of ‘systemism’.
The results of the project contribute to the current debate about the right set of industrial policies in the Eurozone. We complement the existing body of literature – which is mainly empirical – with a first mechanistic and model-based assessment of industrial policies. Thus, the project is not only the first attempt to provide for a micro foundation of the complexity approach within a stock-flow consistent framework, it also has the potential to contribute to the development of policies meant to address one of the most worrying trends today: the growing polarization in the Eurozone.
Working Paper I:
Theory and Empirics of Capability Accumulation: Implications for Macroeconomic Modelling
Matthias Aistleitner, Claudius Gräbner, and Anna Hornykewycz| April 8, 2020
Working Paper II:
Capability Accumulation and Product Innovation: Agent-Based Perspective
Anna Hornykewycz and Claudius Gräbner| May 5, 2020
Abstract: Theory and Empirics of Capability Accumulation: Implications for Macroeconomic Modelling
The accumulation of new technological capabilities is of high empirical relevance, both for the development of countries and the business success of firms. In this paper, we aim to delineate strategies how these processes of capability accumulation can be considered more accurately in comprehensive macroeconomic models. To this end, we conduct an interdisciplinary review of the literature specialized on capability accumulation by analyzing both empirical as well as theoretical literature on the firm and aggregated level. In doing so, we collect evidence various determinants and mechanisms of capability accumulation and align them with the current representation of capability accumulation in macroeconomic models. Based on these results, we make some suggestions on how macroeconomists may integrate these determinants derived from the specialized literature into their models.
Keywords Capability accumulation · complexity · economic development · innovation · technological change · agent-based modeling · endogeneous growth · knowledge accumulation and learning
Abstract: Capability Accumulation and Product Innovation: Agent-Based Perspective
The paper studies the relevance of product heterogeneity for innovation dynamics using an agent-based model. The vantage point is a short a review on the empirical relevance of capability accumulation for innovation processes and an assessment of how these processes are modelled theoretically in evolutionary micro and macroeconomic models. This shows that the macroeconomic literature so far has focused on process innovations. To facilitate the consideration of empirical and microeconomic insights on product innovation in macroeconomic models, a simple agent-based model, which may later serve as an innovation module in macroeconomic models, is introduced.
Following up on recent empirical results, products in the model are heterogeneous in terms of their complexity and differ in their relatedness to each other. The model is used to study theoretical impli- cations of different topological structures underlying product relatedness by conducting simulations with different ‘product spaces’. The analysis suggests that the topological structure of the product space, the assumed relationship between product complexity and centrality as well as the relevance of product complexity in price setting dynamics have significant but nontrivial implications and deserve further attention in evolutionary macroeconomics. To this end, the model presented here may serve as a first step towards a module to be integrated in such a more comprehensive model framework.