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Contagious disruptions and complexity traps in economic development

Nature Human Behaviour volume 1, pages 665–672 (2017)Cite this article

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Abstract

Poor economies not only produce less; they typically produce things that involve fewer inputs and fewer intermediate steps. Yet the supply chains of poor countries face more frequent disruptions—delivery failures, faulty parts, delays, power outages, theft and government failures—that systematically thwart the production process. To understand how these disruptions affect economic development, we modelled an evolving input–output network in which disruptions spread contagiously among optimizing agents. The key finding was that a poverty trap can emerge: agents adapt to frequent disruptions by producing simpler, less valuable goods, yet disruptions persist. Growing out of poverty requires that agents invest in buffers to disruptions. These buffers rise and then fall as the economy produces more complex goods, a prediction consistent with global patterns of input inventories. Large jumps in economic complexity can backfire. This result suggests why ‘big push’ policies can fail and it underscores the importance of reliability and gradual increases in technological complexity.

Producing valuable goods and services is a complex, intricate process. One obtains inputs from a multitude of suppliers who must honour their contracts and deliver those inputs without them breaking, spoiling or being stolen. These inputs must be stored safely and manipulated in interdependent stages using labour from workers who may fall ill or shirk their duties, together with complex equipment and vast infrastructure that may malfunction. These complex interdependencies underlie specialization and trade that are the foundation of economic growth and material progress1,2.

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Fig. 1: Disruptions to the production process tend to be more frequent in poorer, less complex economies.
Fig. 2: Illustration of the model.
Fig. 3: Representative phase portrait showing the three phases of a model economy.
Fig. 4: Jumping to a more complex technology can backfire by causing dysfunction to rise, especially for emerging economies.
Fig. 5: Phase diagram of the sign of dF/dt.
Fig. 6: Qualitative match between empirical data on input inventories and the model’s prediction that buffers to supply-chain disruptions rise and then fall as economies develop.

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Acknowledgements

C.D.B. and M.H.B. acknowledge funding from the James S. McDonnell Foundation for the Postdoctoral Award and the Scholar Award (respectively) in Complex Systems. P.P. and F.V.-R. acknowledge funding from the Italian Ministry of Education Progetti di Rilevante Interesse Nazionale grant 2015592CTH. No funders had any role in study design, data collection and analysis, decision to publish or preparation of the manuscript.

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Authors and Affiliations

  1. Center for the Management of Systemic Risk, Columbia University, New York, NY, 10027, USA

    Charles D. Brummitt

  2. Department of Global Health and Social Medicine, Harvard Medical School, Boston, MA, 02115, USA

    Charles D. Brummitt & Matthew H. Bonds

  3. IMT School for Advanced Studies, Piazza San Francesco, 19, 55100, Lucca, Italy

    Kenan Huremović

  4. Aix-Marseille School of Economics, Aix-Marseille University, 5 Boulevard Maurice Bourdet, 13001, Marseille, France

    Kenan Huremović

  5. Department of Decision Sciences, Innocenzo Gasparini Institute for Economic Research, and Bocconi Institute for Data Science and Analytics, Università Bocconi, Via Roentgen 1, Milano, 20136, Italy

    Paolo Pin & Fernando Vega-Redondo

  6. School of Medicine, Stanford University, Stanford, CA, 94305, USA

    Matthew H. Bonds

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All authors designed and performed the research and wrote the paper. C.D.B. and K.H. analysed the data.

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Correspondence to Matthew H. Bonds.

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Brummitt, C.D., Huremović, K., Pin, P. et al. Contagious disruptions and complexity traps in economic development. Nat Hum Behav 1, 665–672 (2017). https://doi.org/10.1038/s41562-017-0190-6

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