The capabilities approach to economic development: on diversity, complexity and relatedness

Abstract

The capabilities model of economic development has inspired a new and extensive body of empirical research on related variety, economic complexity and relatedness. In this model, economic development stems from the acquisition of new capabilities. Combined with existing capabilities, a new capability will lead to a larger variety of products as well as, on average, more complex products. And, as new products emerge by recombining new capabilities with existing ones, the new products will be related to the existing ones. Thus, the capabilities model is capable to integrate all three key concepts in a relatively simple framework. Yet, while empirical research is blossoming in three parallel tracks, one can find very few attempts to link the concepts of variety, complexity and relatedness – be it theoretically, empirically or methodologically. Accordingly, the motivation underlying this PhD thesis is to elaborate the variety-complexity-relatedness framework as based on the capabilities model in ways that render the framework theoretically and methodologically more coherent. Building on the elementary framework of the capabilities model, it discusses the measurement and the role of diversity, complexity and relatedness and their interrelations in economic systems.