ECI, SCI, and ICI - what a provocative band

From A cross-country empirical test of cognitive abilities and innovation nexus by Sardor Azam. From the abstract.

In this study we analyze the relationship between national cognitive abilities and innovational output using data from 124 countries of the world. By employing cross-country IQ scores traditionally used by psychological literature to represent national intelligence, and Economic Complexity Index as a novel measure of innovation, our study shows that there is a positive connection between them. We use a variety of tests to check the robustness of the nexus. Overall, our findings indicate that more intelligent nations export more sophisticated and diverse products to the world market and thus are more innovative. Therefore, developing countries should consider investing in human capital and related institutions if they are to boost innovative capabilities and move up the technology ladder in producing and exporting sophisticated and varied lines of products. This should bring them greater economic diversity which could be a right lever in mitigating negative external shocks.

Plausible but there are a lot of loose ends. What we are measuring when we measure IQ is still somewhat debatable and more critically, from my perspective, is the rigor of cross-cultural IQ measurements. Are we measuring the same thing across different languages, different cultures, different levels of complex development?

Similarly with innovation. The proxy they use for innovation, the Economic Complexity Index, is certainly conceptually worthwhile but as with every proxy, what does it include and what does it leave out?

I suspect there is merit to the general conclusion that higher IQ countries might also be more complex and therefore also more innovative. Plausible.

What is interesting is the short path between a plausible observation and their policy recommendation.

Therefore, developing countries should consider investing in human capital and related institutions if they are to boost innovative capabilities and move up the technology ladder in producing and exporting sophisticated and varied lines of products.

Maybe, but that path is a lot more littered with obstacles and objections than they grant.

The linkage between education and IQ is assumed but by no means obvious. In fact there is a lot of evidence against it, especially the fact that in developed countries with the highest IQs, individual IQs don't seem much affected by education. You have what you inherit plus or minus five points for nutrition and cognitive stimulation. But then there is the unresolved mystery of the Flynn Effect.

Similarly, if you look at countries with high economic complexity and diversity, it is rare that their journey towards that outcome was initiated a priori by catalytic investments in education. Education investments tend to lag economic development, not precede it. And there were many countries in the 1960s through the 1980s who invested hugely in education and yet showed no signs of increased productivity and complexity arising from that investment.

Obviously there is a large confounding variable in a lot of these studies - non-human capital institutions. Communist China had decent investments in human capital (health and to some degree education) for a long time before their astonishing journey to prosperity beginning in the 1980s. The catalyst to that journey had nothing to do with human capital investments though, and everything to do with the adoption of a modified market economy.

Baathist (and similar Arab nationalist) regimes across the Middle East from Algeria, to Egypt and on to Syria, Iraq and elsewhere made huge investments in education over the past fifty years and it is not clear what that investment has yielded to them.

So Azam's piece is plausible but it does not reconcile the many disparate and contradictory pieces of evidence.

But I am intrigued by the notion of the Economic Complexity Index. It dovetails with Flynn's speculative explanation for his eponymous observation.

Flynn in his 2007 book What Is Intelligence? further expanded on this theory. Environmental changes resulting from modernization — such as more intellectually demanding work, greater use of technology and smaller families — have meant that a much larger proportion of people are more accustomed to manipulating abstract concepts such as hypotheses and categories than a century ago. Substantial portions of IQ tests deal with these abilities. Flynn gives, as an example, the question 'What do a dog and a rabbit have in common?' A modern respondent might say they are both mammals (an abstract, or a priori answer, which depends only on the meanings of the words 'dog' and 'rabbit' ), whereas someone a century ago might have said that humans catch rabbits with dogs (a concrete, or a posteriori answer, which depended on what happened to be the case at that time).

I think he has put it elsewhere that increasing IQs are a reflection of more modern (complex and abstract) minds.

But let's dig on that complexity idea a bit more. The top ten nations in terms of economic complexity in 2015 were:

They have data back to 1995. I am looking at that and the trend lines over time, and I see there is a lot of noise in the index. Country indices can change very significantly year-to-year. And economies just don't change that fast. I am guessing that there is something in the index that is highly volatile and overweighted as a contributor.

Setting that criticism aside. I have lived and/or worked in nine of those ten countries (never been to the Czech Republic) and they are pretty complex economies. Noisy as the index might be, they are fair candidates for being at the top of such an index. Strange omissions, from my perspective and experience, are Israel, Denmark, Italy, France, the Netherlands.

But let's look at a wider definition of complexity rather than just economic complexity. I would add considerations of cultural homogeneity, multiple languages, multiple religions, size (linking across a large space is more complex than in a dense space), and nodal dispersion (multiple seats of productivity integrated together are more complex than a single point of density). Governmental instititutional complexity (levels of government and branches of government) is omitted. There are certainly other considerations such as class and inequality to consider but that's enough to start with.

For the top ten ECI countries I added columns indicating a crude experientially based assessment of High, Medium or Low, equating to a value of 3, 2, and 1 respectively. A country such as Sweden has a very low Social Complexity Index as it is culturally homogenous, has a single language, is of overwhelming Lutheran heritage, is geographically pretty small and has a single primary loci of culture (Stockholm; all due respect to Malmo and Gothenberg).

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I then even more crudely averaged the two indices and reranked based on the results.

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That looks about right in terms of ordinal ranking but I suspect that the dispersion in the SCI would be quite a deal greater with a more sophisticated treatment. Combining the social complexity would push some of those other countries up into the top ten, especially such as Britain and Israel.

A sophisticated treatment of three indices would be, possibly, quite revealing. An Economic Complexity Index, a Social Complexity Index, and an Institutional Complexity Index.

That's food for thought.