Economic evolution and specialization

As an economic system grows and develops, several key processes occur. Growth means greater population and larger markets, allowing the economy to diversify. Economic development leads to improvements in infrastructure, including transportation networks, which facilitate trade and encourage specialization. In this paper we examine the effects of economic evolution on the structure of 22 national economies, with particular emphasis on their levels of industrial diversification, and how this process affects the international economic system. Our results show a clear tendency for a nation's specialization to decrease over time as development occurs, but only up to a point. The degree of specialization falls more slowly over time in virtually every case, with specialization tending to increase again in several of the most developed economies. Greater specialization means greater interdependence; increasingly, a change in a distant economy has effects in seemingly unrelated places due to these interconnections. A key consequence of this is an increasing need to take a systems approach in economic analysis.