Productive Ecosystems and the arrow of development

Neave O’Clery,Muhammed Ali Yıldırım,Ricardo Hausmann

doi:10.1038/s41467-021-21689-0

Neave O’Clery, Muhammed Ali Yıldırım + Show 1 more

Open Access

https://doi.org/10.1038/s41467-021-21689-0

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Abstract

Economic growth is associated with the diversification of economic activities, which can be observed via the evolution of product export baskets. Exporting a new product is dependent on having, and acquiring, a specific set of capabilities, making the diversification process path-dependent. Taking an agnostic view on the identity of the capabilities, here we derive a probabilistic model for the directed dynamical process of capability accumulation and product diversification of countries. Using international trade data, we identify the set of pre-existing products, the product Ecosystem, that enables a product to be exported competitively. We construct a directed network of products, the Eco Space, where the edge weight corresponds to capability overlap. We uncover a modular structure, and show that low- and middle-income countries move from product communities dominated by small Ecosystem products to advanced (large Ecosystem) product clusters over time. Finally, we show that our network model is predictive of product appearances.

Highlights

Economic growth is associated with the diversification of economic activities, which can be observed via the evolution of product export baskets
We take an agnostic view on the identity of the capabilities and we derive a probabilistic model to describe the directed dynamic process of capability accumulation and product diversification of countries
In order to model the process of product diversification via capability accumulation, we build on Hausmann and Hidalgo[24]

Summary

Introduction

Economic growth is associated with the diversification of economic activities, which can be observed via the evolution of product export baskets. A recent and celebrated version of the Ricardian model developed by Eaton and Kortum[14] proposes that technological differences across countries, and the relative evolution of productivity across exports, determines the pattern of production in the world These authors do not seek to uncover the causes behind the observed pattern, implicitly taking a phenotypic view of the international trade. The Hecksher–Ohlin model ties trade patterns to factor differences between countries, and proposes that the relative abundance of factors (labour, capital etc.) shapes the production choices of a country This model takes a genetic perspective, yet quickly becomes intractable for large numbers of factors and products, constraining detailed insights into diversification processes

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