Rethinking Innovation: How Economic Complexity Theory Reveals New Pathways to Growth
9 أكتوبر 2025
9 أكتوبر 2025 ・ minutes reading time
What if the secret to fostering innovation isn't found in traditional economic models, but in understanding how knowledge itself evolves and spreads? In a recent episode of WIPO's Mission Imagination series, Professor Ricardo Hausmann from Harvard's Growth Lab presents a compelling new framework that could revolutionize how policymakers approach innovation and economic development.
Beyond Capital: Knowledge as the Foundation of Growth
Professor Hausmann's journey began with a puzzling observation during his tenure as chief economist at the Inter-American Development Bank in the 1990s. Despite countries successfully stabilizing their macroeconomic policies and opening their markets, expected growth often failed to materialize. This led him to question fundamental assumptions about what drives economic development.
"The most important thing in production is not capital, human capital, or labor," Hausmann explains, "but the fundamental ingredient is know-how." This insight forms the cornerstone of economic complexity theory, which reconceptualizes growth as the expansion and recombination of collective knowledge rather than simply the accumulation of traditional factors of production.
The Scrabble Game of Economic Development
To illustrate this concept, Hausmann employs a board game analogy: imagine capabilities as letters in Scrabble, and products as words. Countries with more diverse "letters" can form more complex "words" – representing a greater variety of sophisticated products and services. This framework immediately clarifies why some nations struggle to diversify their economies while others seamlessly transition between industries.
The theory addresses a critical challenge in innovation policy: the chicken-and-egg problem. How does a country develop watchmaking capabilities without existing watchmakers? Hausmann's answer lies in the "adjacent possible" – identifying opportunities that require developing a few neighboring but missing capabilities rather than entirely new knowledge sets.
Finland exemplifies this approach perfectly. The country transformed from a wood-based economy to a technology leader by evolving through adjacent steps: from cutting wood to making wood-cutting machines, then to automated machines, and eventually to Nokia's mobile technology. Each transition built upon existing capabilities while adding new ones.
Public-Private Knowledge Networks
A crucial insight from Hausman concerns the complementary nature of public and private innovation. Using another linguistic analogy, he describes market-available resources as "consonants" and public goods as "vowels" – both essential for forming complete "words" or functional technologies.
"Every technology requires combinations of public goods that the government has to make sure are there," Hausmann notes. Electric vehicles, for instance, depend not just on private manufacturing capabilities but on public charging infrastructure, regulatory frameworks, and standardization efforts. This highlights the crucial role of intellectual property systems, innovation policies, and international coordination mechanisms that WIPO facilitates.
Agents of Change in the Digital Age
The framework identifies three primary pathways for capability development:
- Attracting foreign direct investment,
- leveraging large domestic conglomerates,
- and fostering startup ecosystems.
Each requires different policy approaches and faces distinct challenges in developing economies.
Particularly intriguing is Hausmann's discussion of "outward FDI" – the strategic acquisition of foreign companies to import knowledge rather than capital. This offers developing countries a proactive alternative to waiting for inward investment. Meanwhile, artificial intelligence promises to make knowledge more accessible globally, potentially accelerating the diffusion of capabilities with profound implications for international IP frameworks.
A New Blueprint for Innovation Policy
Hausmann's recommendations for policymakers center on three foundational principles:
- Deep engagement with productive sectors,
- robust inter-ministerial coordination,
- and maintaining focus on ultimate goals rather than intermediate metrics.
For the private sector, he emphasizes understanding one's capability portfolio and exploring adjacent possibilities for reinvention.
These insights offer fresh perspectives on persistent challenges in innovation policy. Rather than pursuing generic competitiveness indices, countries can use complexity analysis to identify realistic pathways for economic transformation based on their existing knowledge base.
For WIPO's global community working on intellectual property and innovation policy, this framework offers valuable tools for designing more effective, context-specific approaches to fostering technological development and economic growth. As countries navigate an increasingly complex global knowledge economy, understanding the intricate relationships between capabilities, products, and institutions becomes ever more crucial for building sustainable competitive advantages.
