On the evolution of comparative advantage: Path-dependent versus path-defying changes

Abstract

A country’s specialization evolves over time in a dynamic process, with shifts in comparative advantages, resulting in new products being added to the country’s export basket. According to the renowned Product Space (PS) framework (Hausmann and Klinger, 2007; Hidalgo et al., 2007), this dynamic process is characterized by strong path dependence, as a country’s current production capabilities (technologies, production factors, institutions, etc.) determine what a country produces today, but also limits what it can produce tomorrow. We use a novel methodology to explore whether the patterns of specialization of a large sample of countries for the period 1995–2015 correspond to the predictions of the PS framework. Despite finding evidence of path dependence, our analysis also finds that a significant number of new products later added to countries’ export baskets were unrelated to their initial specialization pattern. We shed light on the determinants of these path-dependent changes in countries’ export baskets and show that economic growth is weaker in countries with a higher degree of path dependence.