In the short-term, economies shift preferentially into new activities that are related to ones they currently do. Such a tendency should have implications for the nature of an economy’s long-term development as well. We explore these implications using a dynamical network model of an economy’s movement into new activities. First, we theoretically derive a pair of coordinates that summarize long-term structural change. One coordinate captures overall ability across activities, the other captures an economy’s composition. Second, we show empirically how these two measures intuitively summarize a variety of facts of long-term economic development. Third, we observe that our measures resemble complexity metrics, though our route to these metrics differs significantly from previous ones. In total, our framework represents a dynamical approach that bridges short-and long-term descriptions of structural change, and suggests how different branches of economic complexity analysis could potentially fit together in one framework.

We study episodes where economic growth decelerates to negative rates. While the majority of these episodes are of short duration, a substantial fraction last for a longer period of time than can be explained as the result of business-cycle dynamics. The duration, depth and associated output loss of these episodes differs dramatically across regions. We investigate the factors associated with the entry of countries into these episodes as well as their duration. We find that while countries fall into crises for multiple reasons, including wars, export collapses, sudden stops and political transitions, most of these variables do not help predict the duration of crises episodes. In contrast, we find that a measure of the density of a country's export product space is significantly associated with lower crisis duration. We also find that unconditional and conditional hazard rates are decreasing in time, a fact that is consistent with either strong shocks to fundamentals or with models of poverty traps.

This paper explores the role that uncertainty plays in the emergence of new products or services for export in developing countries. Using a comparative case study method, I explore the degree to which those entrepreneurs who discovered new export activities faced uncertainty, and what the nature of this uncertainty was. I then document how this uncertainty, when present, was resolved, and how this affected subsequent diffusion of the newly discovered activity. The cases suggest two important dimensions of uncertainty in the emergence of new export activities: productivity characteristics and demand characteristics. A new activity could feature one, both, or neither types of uncertainty. The reasons for lower inherent uncertainty in these cases suggest a new theory of product similarity that is heterogeneous, multi-dimensional, and operating at a highly disaggregated level. Furthermore, the degree of uncertainty has implications for the expected ‘triggers’ of discovery, and these are born out in the cases. Finally, when uncertainty was present, its resolution often provided significant benefits to subsequent entrants, and the manner in which high uncertainty was overcome suggests potential avenues for policy.

Countries seldom grow rich by producing the same things more productively. They usually change what they produce in the process of development. Structural transformation is the process whereby countries move to new economic activities that are more productive and thus are able to pay higher wages. This process is very important for growth: countries that are able to upgrade their exports by developing new economic activities tend to grow faster (Hausmann and Rodrik, 2003; Hausmann, Hwang, and Rodrik, 2006).

The purpose of this paper is to apply new methodologies to analyze the history of and future opportunities for structural transformation in the Caribbean. We first look at the composition of exports from the Caribbean, and show that the region is specialized in relatively unsophisticated, ―poor-country‖ export products, and this is not simply a consequence of their small size or specialization in tourism and financial services.

We then review the concept of the ―product space‖ and determine where the Caribbean countries are specialized within this space. The results show that generally these countries export peripheral products that are intensive in capabilities with few alternative uses. In addition, we consider what effects regional integration would have on this opportunity set and show that future opportunities for structural transformation are much higher for the Caribbean Community (CARICOM) as a perfectly integrated zone—higher than for any of its members on their own.

The final section discusses the policy implications of these results. We show that for almost all countries in the Caribbean there is a need to move to new export activities. Some countries in the region have a set of nearby activities they could exploit, including in the services sector, which suggests a parsimonious approach to promoting new activities is appropriate. This approach involves the government better orienting itself to learn what emerging sectors need in the way of publically provided inputs. But for many countries in the region, there are few nearby activities, suggesting a more proactive search process is necessary. In the appendix we apply the product space data to this search for nearby and more distant export activities for Belize and Jamaica. However, such data is merely a starting point for what must be a continuous process of high-bandwidth dialogue with the private sector to learn what is needed for new activities to emerge. We provide general design guidelines for such a dialogue, both for nearby and more distant activities, and we outline some specific initiatives as examples.

This paper applies new techniques and metrics to analyze Ecuador's past record of and future opportunities for structural transformation. Ecuador's export dynamics and the emergence of new export activities have been the historical drivers of the country's growth, but recently Ecuador's export basket has undergone little structural transformation. The same broad sectors continue to dominate, and the overall sophistication of the export basket has actually declined in recent years. In order to consider why movement to new, more sophisticated export activities has lagged in Ecuador, we examine export connectedness and find that the country is concentrated in a peripheral part of the product space. We quantitatively scan Ecuador's efficient frontier and identify new, high-potential export activities that are nearby in the product space. This sector evaluation provides valuable information for the government to prioritize dialogue and interventions, but it is not meant to be a conclusive identification of "winners". Rather, we provide policy guidelines to facilitate the emergence of these and other new export activities, dealing with the sector-specificity of much of what the government must provide to the private sector to succeed while at the same time avoiding the well-known perils of traditional industrial policies.

Beneficiation, moving downstream, and promoting greater value added in natural resources are very common policy initiatives to stimulate new export sectors in developing countries, largely based on the premise that this is a natural and logical path for structural transformation. But upon closer examination, we find that very few countries that export raw materials also export their processed forms, or transition to greater processing. The quantitative analysis finds that broad factor intensities do a much better job of identifying patterns of production and structural transformation than forward linkages, which have an insignificant impact despite the fact that our data is biased against finding significant effects of factor intensities and towards finding significant effects of forward linkages. Moreover, the explanatory power of forward linkages is even smaller in sectors with high transport costs, and in sectors classified as primary products or raw materials, which are the most common targets of such policies. Finally, the results are the same even when only considering developed countries, meaning that colonial legacy inhibiting transitions to natural resource processing are not to blame. These results suggest that policies to promote greater downstream processing as an export promotion policy are misguided. Structural transformation favors sectors with similar technological requirements, factor intensities, and other requisite capabilities, not products connected in production chains. There is no reason for countries like South Africa to focus attention on beneficiation at the expense of policies that would allow other export sectors to emerge. This makes no sense conceptually, and is completely inconsistent with international experience. Quite simply, beneficiation is a bad policy paradigm.

The purpose of this paper is to analyze Colombia’s experiences with and opportunities for export led growth. We first review Colombia’s growth and export performance over the past 30 years and find that the country is indeed facing an export challenge. We then go on to develop new metrics and apply them to Colombia’s export challenge. First, we consider the opportunities for upgrading quality within existing exports, and find that Colombia has very little opportunity for growth in this dimension. Second, we consider the level of sophistication of the current export basket, and find that it is low and commensurate with the lack of export dynamism. Although not a significant drag on growth, the current export basket will not be sufficient to fuel future output growth. Finally, we develop the concept distances between products, open forest, and the option value of exports to examine the possibility that Colombia’s current structure of production is itself a barrier to future structural transformation. While improvements in the export package have been slow in the past, this evidence suggests that Colombia does now enjoy more options for future structural transformation. As there are attractive options for structural transformation nearby, a parsimonious approach to industrial strategy, rather than a risky strategic bet to move to a new part of the product space, seems appropriate. In order to inform such a strategy, we use the metrics developed in the diagnostic to evaluate new export activities in terms of their proximity to current activities, their sophistication, and their strategic value. We identify the sectors representing the best tradeoffs between these aims for Colombia as a whole, as well as its regions. We also devote separate attention to the topic of Agricultural exports, and to exports of services. Finally, we use these metrics to analyze the list of ‘high-potential’ sectors in the United States, developed by another firm, as well as the sectors prioritized in Colombia’s Agenda Interna. These external lists of high-potential sectors are found to be sensible, but could be further rationalized using these metrics. This identification of nearby, high-potential, and strategically valuable sectors is not meant to be a definitive list for targeted subsidies and ‘picking winners’. Rather, it provides a robust data-driven approach to inform the next steps in achieving export-led growth in Colombia: which private sector actors should be consulted first? What sector-specific reforms should be stressed? How should public spending on infrastructure and training, which are also sector-specific, be prioritized? What foreign firms should be targeted by FDI promotion agencies? These decisions can be informed by our analysis and the accompanying data.

This paper explores export performance in South Africa over the past 50 years, and concludes that a lagging process of structural transformation is part of the explanation for stagnant exports per capita. Slow structural transformation in South Africa is found to be a consequence of the peripheral nature of South Africa’s productive capabilities. We apply new tools to evaluate South Africa’s future prospects for structural transformation, as well as to explore the sectoral priorities of the DTI’s draft industrial strategy. We then discuss policy conclusions, advocating an ‘open-architecture’ industrial policy where the methods applied herein are but one tool to screen private sector requests for sector-specific coordination and public goods.

* See also the 7/27/07 Sciencenews article as well as the supplementary materials website.

The literature extensively discusses the increasing commitment toward comprehensive structural reform of China’s economy as it targets to achieve high quality and sustainable economic growth. This research investigates the inherent relationship between supply-side structural reform (SSSR) and dynamic capital structure adjustment in Chinese-listed firms. Our results show that SSSR’s introduction has significantly improved the adjustment speed toward the optimal debt ratio, especially for firms with high indebtedness and low investment performance. Importantly, China’s bond market plays a crucial role through SSSR for firms’ debt ratio to adjust toward their optimal level. However, there is no such evidence among state-owned enterprises (SOEs), suggesting that the structural reform concerning corporate capital structure for SOEs is more challenging and longstanding when compared with non-SOEs.

Structural transformation is the process by which countries change what they produce and move from low-productivity, low-wage activities to high-productivity, high-wage activities. The purpose of this report is to use emerging methodologies to analyze Pakistan’s history of and opportunities for structural transformation, in an effort to better understand past economic performance and accelerate future economic growth. Part 1 looks at the composition of Pakistan’s export basket and establishes that the country is specialized in relatively unsophisticated export activities that are typical of poorer countries. Compared to other countries in Asia, Pakistan has not been moving to new and better export activities, and consequently has fallen behind. We show that this is in part because the actual products that Pakistan currently produces are intensive in capabilities with few alternative uses. Pakistan is specialized in a relatively peripheral part of the product space, and has not explored the productive possibilities as actively as its comparators. Given this record, an important priority in the future is to accelerate structural transformation. Pakistan’s current orientation in the product space suggests that such acceleration would require a mix of facilitating movements to nearby activities, as well as encouraging more strategic jumps to new areas of the product space. Part 2 uses the data and methodologies of Part 1 to identify what those nearby and more distant activities might be, while Part 3 discusses appropriate policies that follow from these results and promote structural transformation, without suffering common failures of past industrial policies. The key message is that the government of Pakistan must actively learn the sector-specific constraints to structural transformation and overcome them in order to accelerate future economic growth.

The main finding of this analysis is that Chile’s pattern of specialization implies little opportunities for easy movements to new activities. Chile is specialized in an extremely sparse part of the product space and has a relatively unsophisticated export package. Past growth has been surprisingly strong given this pattern of specialization, as has been performance in the services sector, and it appears that there does remain some room to continue growing through quality upgrading in existing products. However, Chile has little room to increase its market share in existing products, and its current export package does not offer a path to future structural transformation and growth. Furthermore, this isn’t due to Chile’s status as a natural resource-based economy, as the country lags in these dimensions even when compared to countries like Canada, Australia, and New Zealand. Movements to new sectors are necessary, but will be difficult given this pattern of specialization. This suggests that there should be some scope for public investment in the study and coordination of new export activities to fuel long-term economic growth.

We introduce quality differentiation into a Ricardian model of international trade. We show that (1) quality differentiation allows industrialized countries to be active across the full board of products, complex and simple ones, while developing countries systematically specialize in simple products, in line with novel stylized facts. (2) Quality differentiation may thus help to explain why richer countries tend to be more diversified and why, increasingly over time, rich and poor countries tend to export the same products. (3) Quality differentiation implies that the gains from inter-product trade mostly accrue to developing countries. (4) Guided by our theory, we use a censored regression model to estimate the link between a country’s GDP per capita and its export quality. We find a much stronger relationship than when using OLS, in line with our theory.