This research project studies the extent to which globalisation reinforces structural inequalities between nation states in the Eurozone, and which kind of policies can help to bring about convergence among the member states.

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Our starting point is the observation that in recent times of increasing economic openness, inequalities within and between many countries in the Eurozone have increased. We rationalize these developments by referring to the literature on economic complexity according to which economic prosperity requires the collective ability to perform particular economic activities, as evidenced by the production of complex products. In the Eurozone, we observe that poorer countries tend to import such complex products, which are mainly produced and exported by richer countries. We conjecture that these patterns of unequal exchange could be a major driver of polarization because poorer countries get ‘trapped’ in unattractive economic activities (such as the production of simple products).

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While the first part of the project uses tools from network science and econometrics to identify and summarise such stylised facts concerning the production structure of richer and poorer countries in the Eurozone. The second (and main) part builds upon these results and develops model that is able to reproduce these stylised facts, and that can be used for policy experiments. This model, which will be both agent-based and stock-flow consistent, will be characterized by at least three distinctive features: first, it will be the first model that explicitly represents the process of accumulation of productive capabilities in countries on the micro level, and how they translate into macro dynamics of economic development. Second, the model is stock-flow consistent and thereby integrates both financial and real trade-related factors to explain polarization in the Eurozone. And third, the model will allow us to simulate policies and regulatory frameworks aiming to rationalize these phenomena and to counter-act intra-Eurozone polarization.

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Such an endeavour is necessarily both interdisciplinary and pluralist. We draw on approaches from outside economics as well as on different economic paradigms. To address the lack of an underlying economic and social theory of capability accumulation in the complexity approach to development we triangulate various streams of economic and social thought, including structuralist and dependency theories, Post-Keynesian macroeconomic theory, evolutionary economic theories of innovation and technological change, and concepts and tools from complexity science. The contributions will be integrated under a common meta-theoretical framework, provided by the philosophical concept of ‘systemism’.

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The results of the project contribute to the current debate about the right set of industrial policies in the Eurozone. We complement the existing body of literature – which is mainly empirical – with a first mechanistic and model-based assessment of industrial policies. Thus, the project is not only the first attempt to provide for a micro foundation of the complexity approach within a stock-flow consistent framework, it also has the potential to contribute to the development of policies meant to address one of the most worrying trends today: the growing polarization in the Eurozone.