On the Evolution of Comparative Advantage: Path-Dependent Versus Path-Defying Changes

SERIES Working Papers N. 01/2018

38 Pages Posted: 12 Mar 2018

See all articles by Nicola D. Coniglio

Nicola D. Coniglio

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods

Davide Vurchio

University of Rome III - Department of Economics

Nicola Cantore

Overseas Development Institute (ODI)

Michele Clara

UNIDO

Date Written: March 2018

Abstract

The diversification of production and trade is considered almost unanimously a fundamental policy goal, particularly for developing economies whose export baskets are heavily concentrated on a few products. In what direction trade diversification ought to take place is, however, subject to fierce debate. The Product Space (PS) framework (Hausmann and Klinger, 2007; Hidalgo et al. 2007) is a recent contribution in the economic literature that has proved very influential in policy circles. It argues that the endowment of production capabilities (technologies, production factors, institutions etc.) determines what countries produce today but it also constrains what they can produce in the future as it is uncommon that countries develop a comparative advantage in goods that do not draw from the same pool of capabilities (unrelated products). Contributions along such line argue that defying the initial comparative advantage can be a risky policy decision with high probability of failure. The main objective of this contribution is to use a novel methodology to investigate whether the patterns of diversification of a sample of 177 countries over the period 1995-2015 conform or not to the prediction of the PS framework. We find evidence of a high degree of path-dependence but our analysis suggests also that a significant number of new products that entered countries’ export baskets were unrelated to the initial productive specialization (path-defying changes). We shed light on the determinants of these ‘radical’ patterns of diversification and show they are associated with higher economic growth. The results of this study have important policy implications in particular for the design of industrial policies aimed at actively shaping countries’ structural transformation.

Keywords: path-dependence, product space, trade diversification, industrial policy

JEL Classification: F1, O1, O3

Suggested Citation

Coniglio, Nicola D. and Vurchio, Davide and Cantore, Nicola and Clara, Michele, On the Evolution of Comparative Advantage: Path-Dependent Versus Path-Defying Changes (March 2018). SERIES Working Papers N. 01/2018, Available at SSRN: https://ssrn.com/abstract=3136471 or http://dx.doi.org/10.2139/ssrn.3136471

Nicola D. Coniglio (Contact Author)

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Economics and Mathematical Methods ( email )

Largo Abbey St. Scholastica
Bari, 70124
Italy

HOME PAGE: http://www.dse.uniba.it/Corsi/docenti/Coniglio/Nicola_paginaWeb.htm

Davide Vurchio

University of Rome III - Department of Economics ( email )

via Ostiense, 139
Rome, 00154
Italy

Nicola Cantore

Overseas Development Institute (ODI) ( email )

111 Westminister Bridge Rd.
London, SE17JD
United Kingdom

Michele Clara

UNIDO ( email )

BP V 18
Abidjan, A-1400 Vie
Ivory Coast (Cote D'ivoire)

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