New Research Report Analyzes 'Product Space' in Developing Countries (Press Release) :: Center for International Development at Harvard University (CID)

New Research Report Analyzes 'Product Space' in Developing Countries

Press Release written by the KSG Office of Communications

Research Highlighted in July 27th Science Magazine

27 July 2007 - How economies evolve and expand their export product lines is the focus of a new research report, co-authored by Kennedy School Professor Ricardo Hausmann, which appears in the July 27 edition of Science magazine.

"The Product Space Conditions the Development of Nations," co-authored by C.A. Hidalgo and A.L. Barab�si, physicists at the University of Notre Dame; and Bailey Klinger, a PhD candidate at the Kennedy School, studies the network of relatedness between products. Economies grow by upgrading the products they produce and export, but they do so by moving to closely related goods.

Hausmann explains: "If you think of products as trees in a forest and a country's firms as monkeys living on some of those trees, then development is about getting the monkeys to jump from the poor part to the richer part of the forest. But monkeys cannot jump long distances. They need to move to related products. So the shape of the forest matters for their ability to move. We have mapped it and found it to be very heterogeneous."

"Traditional growth theory assumes there is always a tree within reach; hence the structure of this forest is unimportant," the authors write. "However, if this forest is heterogeneous, with some dense areas and other more deserted ones, and monkeys can jump limited distances, then countries may be unable to move through the product space. If this is the case, the structure of this space and a country�s orientation within it become of great importance to the development of countries."

Using the tools of network analysis, the authors find that more sophisticated products are located in a more densely connected core, while certain unsophisticated products are located in a more loosely connected periphery, helping explain why some low-income countries often have a difficult time traversing the economic terrain and upgrading their export package. These countries have developed capabilities with few alternative uses, and often get stuck.

"These findings have important consequences for economic policy, as the incentives to promote structural transformation in the presence of proximate opportunities are quite different from those required when a country hits a dead-end," the authors write. "It is quite difficult for production to shift to products far away in the space, and therefore policies to promote large jumps are more challenging. Yet, it is precisely these long jumps that generate subsequent structural transformation, convergence, and growth."

Ricardo Hausmann is professor of the practice of economic development and director of the Center for International Development at Harvard University. Previously he served as Chief Economist at the Inter-American Development Bank (1994-2000), and as Minister of Planning for Venezuela (1992-93) and as a member of the board of the Central Bank of Venezuela.

View the research abstract on the Science magazine web site, download the report as a PDF document, or visit the supplementary materials web site.

----------------

Original KSG Press Release
KSG Office of Communications and Public Affairs

For related publications, see also CID Working Papers No. 146 and No. 128 which are part of the same project but use traditional economic methods, in addition to CID Working Paper No. 129, "South Africa's Export Predicament," as a practical application of the methodology.

Direct site comments or questions to CID's Webmaster.
Copyright � 2007 by the President and Fellows of Harvard College.
Last revised 09/21/2007