Scaling and discontinuities in the global economy

Abstract

Investigation of economies as complex adaptive systems may provide a deeper understanding of their behavior and response to perturbation. We use methodologies from ecology to test whether the global economy has discontinuous size distributions, a signature of multi-scale processes in complex adaptive systems, and we contrast the theoretical assumptions underpinning our methodology with that of the economic convergence club literature. Discontinuous distributions in complex systems consist of aggregations of similarly-sized entities, separated by gaps, in a pattern of non-random departures from a continuous or power law distribution. We analysed per capita real GDP (in 2005 constant dollars) for all countries of the world, from 1970 to 2012. We tested each yearly distribution for discontinuities, and then compared the distributions over time using multivariate modelling. We find that the size distribution of the world’s economies are discontinuous and that there are persistent patterns of aggregations and gaps over time. These size classes are outwardly similar to convergence clubs, but are derived from theory that presumes that economies are complex adaptive systems. We argue that the underlying mechanisms, rather than emerging from conditions of initial equivalence, evolve and operate at multiple scales that can be objectively identified and assessed. Understanding the patterns within and across scales may provide insight into the processes that structure GDP over time.