Can we design an industry classification system that reflects industry architecture

ABSTRACTInterdependencies amongst firms with complementary capabilities lead to the emergence of stable patterns of interfirm relationships observed in global value chains and ecosystems. But current standard industry classification systems group industries into higher order aggregates based on similarity criteria, ignoring the complementarities that induce interdependence. We show how systems theory can be used to design an industry classification system that captures the interindustry interdependencies manifested by buy-sell transactions between firms. Our arguments are three. First, that we can improve upon currently available industry classification systems by clearly identifying criteria for grouping industries into higher order aggregates such as sectors. Second, that a top level grouping based on demand will divide the economy into sectors in a manner that is consistent with global value chains and other configurations of interfirm networks. And third, that roles within demand-based sectors are the...