The Product Space and Its Consequences for Economic Growth

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The Product Space and Its Consequences for Economic Growth Cesar A. Hidalgo R. B.Klinger, A.-L. Barabasi, R. Hausmann Center for Complex Network Research Department of Physics University of Notre Dame Center for International Development Kennedy School of Government Harvard University

Area of countries proportional to ppp (GDP per Capita) Area of countries proportional to ppp (GDP per Capita). Source: worldmapper.org

Fij = min{P(RCAi|RCAj),P(RCAj|RCAi)} Share of the ith product on the basket of country c at time t Share of the ith product on the basket of the world at time t fij=P(RCAi|RCAj) Fij = min{P(RCAi|RCAj),P(RCAj|RCAi)} B. Balassa, The Review of Economics and Statistics 68, 315 (1986).

Feenstra’s Trade Flows(1) sitc-4 import and export data. (1) Feenstra, R. R. Lipsey, H. Deng, A. Ma and H. Mo. 2005. “World Trade Flows: 1962-2000” NBER working paper 11040. National Bureau of Economic Research, Cambridge MA.

Threshold = 0.55 Number of Links = 1525

MALAYSIA

Malaysia 1975

Malaysia 1980

Malaysia 1985

Malaysia 1990

Malaysia 1995

Malaysia 2000

Density Discovery Factor wj = Fraction of the product space that seems to be developed from the jth product perspective Discovery Factor Hj = Increase in density between transition product and undeveloped products.

Discovery Factor Density

P(transition | closest developed product is at proximity f)

KEY Denotes where region has RCA

Conclusion We showed: Product space is heterogeneous Constrains the development of RCA Rich and poor countries are located in distinct places of it Development Strategies should be different for rich and poor countries The structure of the space prevents economical convergence