the product space and its consequences for economic development cesar a. hidalgo center for complex...

The Product Space and Its Consequences for Economic

Development

Cesar A. Hidalgo

Center for Complex Network Research,Department of Physics,University of Notre Dame

Area of countries proportional to GDP. Source: worldmapper.org

GDP per capita

Labor, Land, Capital, Technological Sophistication

Production Function

Robinson, J. (1953) The production function and the theory of capital,

Review of Economic Studies, vol XXI, 1953, pp. 81-106

Technical Change and the Aggregate Production Function

RM Solow - The Review of Economics and Statistics, 1957

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

ij=P(RCAi|RCAj)ij=P(RCAi|RCAj)

ij = min{P(RCAi|RCAj),P(RCAj|RCAi)}

B. Balassa, The Review of Economics and Statistics 68, 315 (1986).B. Balassa, The Review of Economics and Statistics 68, 315 (1986).

Simple Graph:

Symmetric, Binary.

Directed Graph:

Non-Symmetric, Binary.

Directed and Weighted Graph:

Any Matrix

Feenstra’s Trade Flows(1)

(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.

sitc-4 import and export data.

Threshold = 0.55

Number of Links = 1525

$ 44k $ 30k $ 32k $ 31k $ 32k

= $ 34k

$ 30k $ 8k $ 5k $ 7k

= $ 12k

PRODY

PRODY

Hausmann, Hwang and Rodrik (2006), NBER Working Paper 11905, (2006)

Footwear

Undergarments made of Cotton

Coats and Jackets

Organo Sulphur Compounds

Phenols

Cyclic Alcohols

Denotes where region has RCA

KEY

MALAYSIA

Malaysia 1975

Malaysia 1980

Malaysia 1985

Malaysia 1990

Malaysia 1995

Malaysia 2000

China

China 1975

China 1980

China 1985

China 1990

China 1995

China 2000

CHILE

Chile 1975

Chile 1980

Chile 1985

Chile 1990

Chile 1995

Chile 2000

Density

j = Fraction of the product space

that seems to be developed fromthe jth product perspective

TN

TH N

Tk

kj

T

k

kj

j

1

1

Discovery Factor

Hj = Increase in density betweentransition product and undeveloped

products.

Discovery Factor

Density

P(transition | closest developed product is at proximity )

ConclusionWe 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 preventseconomical convergence

http://www.nd.edu/~chidalgo

http://austria.phys.nd.edu/productspace

Stable..?

• Pearson’s Correlation Coefficient Between the Matrices.

1990

19981985

0.616

0.6960.7022

Node Size Proportional toIncrease on World Trade