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

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Presentation transcript:

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 Technical Change and the Aggregate Production Function RM Solow - The Review of Economics and Statistics, 1957

Share of the i th product on the basket of country c at time t Share of the i th product on the basket of the world at time t ij =P(RCA i |RCA j ) ij = min{ P(RCA i |RCA j ),P(RCA j |RCA i ) } 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

Feenstras Trade Flows (1) (1) Feenstra, R. R. Lipsey, H. Deng, A. Ma and H. Mo World Trade Flows: NBER working paper 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 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 from the j th product perspective Discovery Factor H j = Increase in density between transition product and undeveloped products.

Discovery Factor Density

P(transition | closest developed product is at proximity )

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 prevents economical convergence

Stable..? Pearsons Correlation Coefficient Between the Matrices

Node Size Proportional to Increase on World Trade