An interpretation and critique of the Method of Reflections

This paper provides an explication of the Method of Reflections developed by Hidalgo and Hausmann and a critique of their interpretation of the variables that it produces. They show that a quantity they identify with the average complexity of a country’s exports is correlated with log income. We show that their complexity measure is also orthogonal to their country diversity score. This suggests that the two measures capture different kind of information, but what that information might be is unclear. In this paper we propose an alternative interpretation and argue that the correlation between log income and Hausmann et al.’s complexity measure is a consequence of the well-studied relationship between export and income growth.