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Leontief Meets Shannon - Measuring the Complexity of the Economic System

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  • Dave Zachariah
  • Paul Cockshott

Abstract

We develop a complexity measure for large-scale economic systems based on Shannon's concept of entropy. By adopting Leontief's perspective of the production process as a circular flow, we formulate the process as a Markov chain. Then we derive a measure of economic complexity as the average number of bits required to encode the flow of goods and services in the production process. We illustrate this measure using data from seven national economies, spanning several decades.

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  • Dave Zachariah & Paul Cockshott, 2017. "Leontief Meets Shannon - Measuring the Complexity of the Economic System," Papers 1705.02154, arXiv.org, revised Jul 2017.
    • Handle: RePEc:arx:papers:1705.02154
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    1. ten Raa,Thijs, 2006. "The Economics of Input-Output Analysis," Cambridge Books, Cambridge University Press, number 9780521602679, November.
    2. Leontief, Wassily, 1991. "The economy as a circular flow," Structural Change and Economic Dynamics, Elsevier, vol. 2(1), pages 181-212, June.
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