The Product Space Conditions the Development of Nations
Abstract
Economies grow by upgrading the products they produce and export. The technology, capital, institutions, and skills needed to make newer products are more easily adapted from some products than from others. Here, we study this network of relatedness between products, or “product space,” finding that more-sophisticated products are located in a densely connected core whereas less-sophisticated products occupy a less-connected periphery. Empirically, countries move through the product space by developing goods close to those they currently produce. Most countries can reach the core only by traversing empirically infrequent distances, which may help explain why poor countries have trouble developing more competitive exports and fail to converge to the income levels of rich countries.
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Supplementary Material
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References and Notes
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The network shown here represents the structure of the product space as determined from the 1998–2000 periods. Holding the product space as fixed is a good first approximation, because the dynamics of the network is much slower than the one of countries. The Pearson correlation coefficient (PCC) between the proximity of all links present in this network and the ones obtained from the same network in 1990 and 1985 are 0.69 and 0.66, respectively (SOM text). This indicates that, although the network changes over time, after 15 years the strength of past links still predicts the strength of the current links to a considerable extent.
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We repeated the same exercise with the rank of proximity instead of proximity itself in order to assess whether what matters is absolute or relative proximity. We found that absolute distance appears to be what matters most. Although transition probability increases linearly with proximity, they decay with rank as a power law. Moreover, the rank effect is stronger for products in sparser parts of the product space, where transitions are also less frequent. Thus, densely connected products can develop RCA through more paths than sparsely connected ones, indicating the importance of absolute proximity.
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32
We would like to thank the following for valuable comments: P. Aghion, L. Alfaro, O. Blanchard, R. Caballero, O. Galor, E. Helpman, A. Khwaja, J. Lahey, R. Lawrence, D. Lederman, L. Pritchett, R. Rigobon, D. Rodrik, A. Rodriguez-Clare, C. Sabel, E. Stein, F. Sturzenegger, and D. Weil. C.A.H. acknowledges support from the Kellogg Institute at Notre Dame. C.A.H. and A.-L.B. acknowledge support from NSF grants ITR DMR-0426737 and IIS-0513650 and from the James McDonald Foundation 220020084.
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Published In
Science
Volume 317 | Issue 5837
27 July 2007
27 July 2007
Copyright
American Association for the Advancement of Science.
Submission history
Received: 2 May 2007
Accepted: 5 July 2007
Published in print: 27 July 2007
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