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The Product Space and Its Consequences for Economic Development

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. Production Function. GDP per capita.

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The Product Space and Its Consequences for Economic Development

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  1. The Product Space and Its Consequences for Economic Development Cesar A. Hidalgo Center for Complex Network Research, Department of Physics, University of Notre Dame

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

  3. Production Function GDP per capita Labor, Land, Capital, Technological Sophistication Robinson, J. (1953) The production function and the theory of capital, Review of Economic Studies, vol XXI, 1953, pp. 81-106

  4. 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 Statistics68, 315 (1986).

  5. Simple Graph: Symmetric, Binary. Directed Graph: Non-Symmetric, Binary. Directed and Weighted Graph: Any Matrix

  6. 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.

  7. Threshold = 0.55 Number of Links = 1525

  8. Hausmann, Hwang and Rodrik (2006), NBER Working Paper 11905, (2006) $ 30k $ 32k $ 44k $ 31k $ 32k $ 30k $ 8k $ 5k $ 7k PRODY = $ 34k = $ 12k PRODY

  9. Organo Sulphur Compounds Footwear Undergarments made of Cotton Phenols Coats and Jackets Cyclic Alcohols

  10. KEY Denotes where region has RCA

  11. MALAYSIA

  12. Malaysia 1975

  13. Malaysia 1980

  14. Malaysia 1985

  15. Malaysia 1990

  16. Malaysia 1995

  17. Malaysia 2000

  18. China

  19. China 1975

  20. China 1980

  21. China 1985

  22. China 1990

  23. China 1995

  24. China 2000

  25. CHILE

  26. Chile 1975

  27. Chile 1980

  28. Chile 1985

  29. Chile 1990

  30. Chile 1995

  31. Chile 2000

  32. Density Discovery Factor wj = Fraction of the product space that seems to be developed fromthe jth product perspective Hj = Increase in density betweentransition product and undevelopedproducts.

  33. Discovery Factor Density

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

  35. 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 preventseconomical convergence

  36. http://www.nd.edu/~chidalgo http://austria.phys.nd.edu/productspace

  37. Stable..? • Pearson’s Correlation Coefficient Between the Matrices. 0.7022 0.696 0.616

  38. Node Size Proportional to Increase on World Trade

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