Capability Accumulation and Conditional Convergence: Towards a Dynamic Theory of Economic Complexity

We develop a dynamic model of economic complexity that endogenously generates a transition between unconditional and conditional convergence. In this model, convergence turns conditional as the capability intensity of activities rises. We solve the model analytically, deriving closed-form solutions for the boundary separating unconditional from conditional convergence and show that this model also explains the path-dependent diversification process known as the principle of relatedness. This model provides an explanation for transitions between conditional and unconditional convergence and path-dependent diversification.

💡 Research Summary

The paper develops a dynamic model of economic complexity that endogenously generates a transition from unconditional to conditional convergence as the capability intensity of activities increases. Building on weak‑link (O‑ring) production functions, the authors introduce an activity‑specific intensity parameter qₚ that captures how many capabilities a given activity requires. The production function Yₚ = Y_b