April 15, 2013

presented at “Advances in Dynamic Economics and Development: Economic and Complexity”, Federal University of Paraná UFPR, Curitiba

**Abstract: **

This article illustrates a formal link between economic growth and longstanding quantitative measures of information and knowledge. The link is found by relating two concepts from evolutionary theory, namely the Price equation and bet-hedging (stochastic switching). The first part of the article uses a Price-equation like evolutionary multilevel decomposition to conceptualize the fact that that uncertainty about the future environment is a main impediment for growth. The second part of the article illustrates how knowledge and information about the uncertain future environment can be used to overcome this constraint. Fisher’s-, Shannon’s-, Kolmogorov’s-, Massey’s- and Kullback-Leibler’s information metrics emerge naturally from our evolutionary equations. These longstanding, renowned and formal metrics allow us to turn the amount of information into a quantifiable ingredient of growth. The amount of information about the uncertain future is exactly equal to the achievable increase in the long term growth rate. The result is a Maxwell’s demon-like logic in which information about the environment can be used to extract fitness. A fourth-digit classification of international trade items of ten large exporting economies is employed to empirically quantify these notions on multiple levels of economic activity. It is shown how growth can be optimized through a mix of informed intervention (often on lower levels of multi-level populations) and blind natural selection (often on more uncertain higher levels).