The Product Space Conditions the Development of Nations

TLDR

Economic growth depends on upgrading the types of products produced and exported, with technology, capital, institutions, and skills more readily transferable between related products. Our analysis of the product space shows that upscale products cluster in a densely connected core while lower‑income products lie on a sparse periphery, and that countries tend to shift to nearby goods, enabling those in well‑connected regions to upgrade exports more rapidly; reaching the core requires infrequent, large jumps, which explains why poorer nations struggle to develop competitive exports and converge to richer countries’ income levels.

Abstract

Economies grow by upgrading the type of products they produce and export. The technology, capital, institutions and skills needed to make such new products are more easily adapted from some products than others. We study the network of relatedness between products, or product space, finding that most upscale products are located in a densely connected core while lower income products occupy a less connected periphery. We show that countries tend to move to goods close to those they are currently specialized in, allowing nations located in more connected parts of the product space to upgrade their exports basket more quickly. Most countries can reach the core only if they jump over empirically infrequent distances in the product space. This may help explain why poor countries have trouble developing more competitive exports, failing to converge to the income levels of rich countries.