2022/38 | LEM Working Paper Series | ||||||||||||||||
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The Knowledge Complexity of the European Metropolitan Areas: Selecting and Clustering Their Hidden Features |
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Carlo Bottai and Martina Iori |
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Keywords | |||||||||||||||||
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Economic Complexity; Labor Productivity; Metropolitan Areas; Dimensionality Reduction; Clustering.
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JEL Classifications | |||||||||||||||||
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O34, O47, O18
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Abstract | |||||||||||||||||
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Cities are key places of economic activity, as they produce an enormous amount
of wealth compared to the land they cover. Their study is, therefore, of primary
importance in understanding the success of nations. Given the many interactions
among people that happen within them, cities are well described as complex
evolving systems, and a thorough analysis of their economy should be able to deal with
this complexity. A likely candidate to grasp the reality of complex evolving systems,
such the economy of cities, is the Economic Complexity framework (Hidalgo
and Hausmann, 2009), given its capacity to synthesize a large amount of informa-
tion into a single index.
We use patent data to compute the knowledge complexity index (KCI) of European
metropolitan areas and describe their economy in terms of their innovative
potential. Interpreted as a dimensionality-reduction algorithm, as proposed by
Mealy et al. (2019), KCI helps to filter out the background noise from the abundant
information produced by the interactions that happen within cities. By extending
the work by van Dam et al. (2021), we highlight the relevance of going beyond the
first leading eigenvector, to the analysis of which the rest of the literature is limited.
We define clusters of similar cities, based on the additional dimensions obtained
through this dimensionality-reduction procedure. The introduction of clusters
dramatically increases the predicting power of KCI. Under this lens, the Economic
Complexity framework is more than a single index: it is a powerful methodology
to reveal the organized complexity hidden behind the large amount of chaotic
information produced by out-of-equilibrium economic systems such as cities.
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