Complexity, Centralization, and Fragility in Economic Networks

Carlo Piccardi
Dipartimento di Elettronica, Informazione e Bioingegneria, Politecnico di Milano
(joint work with Lucia Tajoli, Dipartimento di Ingegneria Gestionale, Politecnico di Milano)


Trade networks, across which countries distribute their products, are crucial components of the globalized world economy. The structure of trade networks is strongly heterogeneous across products, given the different features of the countries buying and selling goods. We validate the conjecture that products with higher complexity are traded worldwide through more centralized networks. To obtain robust results, we use three different indicators to quantify the complexity of a product and three for the centralization of its trade network. After revising the definition and properties of the above indicators, we compute their value over a set of about 1,200 products.
For all the 3x3 complexity/centralization pairs, we consistently find that complexity and centralization are positively correlated in a statistically significant way. To discover which categories of products are the main drivers of this behavior, we repeat the same analysis in a disaggregated fashion by partitioning the set of products into 15 Sections. Taking into account the relative weight of each Section, i.e. the share of world trade, we have that the major responsible of the overall complexity/centralization pattern are medium/high-technology Sections such as Machinery/Electrical, Chemicals, and Metals. Overall, we quantitatively confirm that products with higher complexity – i.e., with typically larger technological content – are traded through a more centralized network – i.e., with a small number of countries concentrating most of the export flow. Since centralized networks are known to be more vulnerable, we argue that the current composition of production and trading is potentially associated with a high vulnerability at the level of the most complex – thus strategic – products.