I have not read the paper in question, of course, but I do have some questions of my own.

First, it may not be surprising that rich countries produce stuff that is at the center of the network. After all, rich countries produce most of the stuff that is produced: depending on how you measure it (and I don't know how the authors did), the US alone produces about a third of the world's stuff, and OECD countries (essentially, North America, western Europe, Japan, Korea, and Australia-NZ) produce half of it. Do they not therefore define the center of the network, and therefore are at its center by definition? In other words, do the authors have the direction of causality reversed? (Being rich means being at the center, not the other way around.)

Second, is it surprising that the outliers mentioned by Harford are natural resource producers--oil and diamonds? I can think of two reasons why not. First, the economic rents from natural resources can be very high--in Saudi Arabia, they say, a barrel of oil costs a few bucks to produce, and sells for about $70 these days--the difference is "rent", or pure profit. Under these conditions, the resource sector is bound to dominate production. Second, natural resource countries tend to specialize in natural resource extraction, both because of the profits and because those profits tend to raise the real exchange rate (the so-called Dutch disease), crowding out other production. None of this means that these countries are poorer *because* of their natural resources, although they might end up being so, for example, because of the corruption that natural resource rents tend to bring.

And third, like all such "barriers to development" theories, this one raises the question of how any countries became rich. I would guess that Japan, Korea, Malasia, Taiwan and so forth would all look like they were in the backwater of the network before they got rich. Yet, they did it. Harford suggests that maybe the answer is government intervention, which these countries surely enjoyed. But, lots of poor countries also "enjoy" government intervention.

Development economists have been wrestling with such conundrums for some years, and it would be interesting to know how this analysis would help them distinguish, ex ante rather than ex post, the winners (like Japan and Korea) from the losers (like, until recently anyway, India).

lloyd667:

... it would be interesting to know how this analysis would help them distinguish, ex ante rather than ex post, the winners (like Japan and Korea) from the losers (like, until recently anyway, India).

Interesting that you should bring up India. With all the talk of "producing stuff" for progress, my first thought was "but what about India?" To be sure, India does have (and has had for decades) a dense and diverse network of goods production (as seen in the country map on the original paper's author's website). But all the recent excitement and the consequent flow of investment has been the result of something not treated by these economists at all. Brains. Indians produced educated brains (in English) and are reaping the benefits of the current connected world where a large amount of economic output is in the form of ideas and bits as opposed to "stuff". Where's that on the map ?

"rich countries produce most of the stuff that is produced ... Do they not therefore define the center of the network, and therefore are at its center by definition?"

No. But, you're right in saying that it depends on how you form the network. The "central" nodes in the networks are typically the ones with the most connections. According to the researcher's explanation (linked in the article), connections are based on correlations between Relative Comparative Advantages; such that they are roughly independent of a country's total number and volume of exports. The number of exports and the formation of connections between exports are effectiveyly de-coupled. So -- as far as I can tell -- there's no inherent bias for a wealthy country's exports to lie near either the center or the periphery.

"Second, is it surprising that the outliers mentioned by Harford are natural resource producers--oil and diamonds? I can think of two reasons why not"

I would say, no it's not surprising, but not for the reasons you suggest. The fact that a product has few connections has little to do with how profitable it is, and everything to do with the fact that it requires an infrastructure that is not useful for much else (see RCA explanation). On the other hand, you seem to be arguing for why certain countries tend to trade in outlying products (and whether or not this contributes to them being poor). I think we would agree that the author doesn't really provide a compelling argument, but I would say that yours is less than convincing too -- partly because diamonds and oil are contradictory examples. Middle Eastern Countries have shown that its possible to become wealthy off of oil exports (see UAE), but diamond exporting countries in Africa are, for whatever reason, poor. Do you think that a country producing outlying products is equally positioned for economic success as a country producing products in the center? I would say no -- a dynamic market requires robustness.

"And third, like all such "barriers to development" theories, this one raises the question of how any countries became rich"

And here, I throw contention to the wind and conced that I agree with you completely. The study offers an interesting snapshot of the current economic landscape, but offers little in the way of explaining the dynamics and how they might be influenced. Poses many questions, offers few answers -- this is the biggest problem with network theory.

gvillian, I am glad to hear from you that the authors appear to have avoided a sort of pre-selection bias, although (again, I am not likely to read the paper) I am not sure what "relative comparative advantage", as distinct from just "comparative advantage", which is already a relative concept. They are respected researchers, so I am not too surprised.

Still, I can't shake the suspicion that rich countries produce (and export) a wide variety of goods and trade with lots and lots of other places and industries. Is this different from saying that countries that produce a wide variety of goods and trade with lots and lots of other places and industries are rich?

You might be right that natural resource producers are outliers not because of what they produce, but because of intermediate inputs. But, the fact that Harford reports (maybe not entirely accurately), that oil producers are at the edge despite the rather wide range of prosperity among them (Norway surely at the top, Venezuela somewhere in the middle, and Nigeria near the bottom) suggests a problem.

I guess the central problem here is that the network is more of a description than an economic explanation. It is a different description than, say, ranking countries by per capita income, but it remains to be seen if it generates new insights.

Lloyd's analysis was very cogently reasoned. As to cause-and-effect, as one who barely passed econ 101 and 102 (barely), it does occur to me that in the "real world" (whatever that is) markets and market-makers determine the simultaneous multi-directional matrices between causes and effects. Risk-taking is not a simple linear progression on one axis, viewed as a snapshot at one moment in time. If that were the case, the government economists and planners who were formerly employed in the former Soviet Union might have succeeded. After all, they had an enormous wealth of resources to command. The tools and the intellectual model these folks in the article have put together are charming (a physics concept), but let us not overlook one important dimension of the underlying reality: If you stop the process to examine it too much (Heisenberg's Uncertainty Principle), it skews the whole reality. That's what makes risk-taking so much fun: It's risky. And risk-taking isn't something that academicians and government employees really own in their guts. That's what separates the business piece of economics from the JAFO community (Just Another Fxxxing Observer). Risk. Risk. Risk. Timing. Go/NoGo. Move/Move/Move. The science is charming, but the business of growing an economy is really the art of deciding which risks to back, and which to pass on.