How Rich Countries Became Rich and Why Poor Countries Remain Poor: It’s the Economic Structure...Duh!

Bard College Levy Economics Institute Working Paper No. 644

55 Pages Posted: 24 Dec 2010

See all articles by Jesus Felipe

Jesus Felipe

Asian Development Bank

Utsav Kumar

Asian Development Bank

Arnelyn Abdon

Asian Development Bank

Date Written: December 24, 2010

Abstract

Becoming a rich country requires the ability to produce and export commodities that embody certain characteristics. We classify 779 exported commodities according to two dimensions: (1) sophistication (measured by the income content of the products exported); and (2) connectivity to other products (a well-connected export basket is one that allows an easy jump to other potential exports). We identify 352 “good” products and 427 “bad” products. Based on this, we categorize 154 countries into four groups according to these two characteristics. There are 34 countries whose export basket contains a significant share of good products. We find 28 countries in a “middle product” trap. These are countries whose export baskets contain a significant share of products that are in the middle of the sophistication and connectivity spectra. We also find 17 countries that are in a “middle-low” product trap, and 75 countries that are in a difficult and precarious “low product” trap. These are countries whose export baskets contain a significant share of unsophisticated products that are poorly connected to other products. To escape this situation, these countries need to implement policies that would help them accumulate the capabilities needed to manufacture and export more sophisticated and better connected products.

Keywords: Bad Product, Capabilities, Low Product Trap, Middle Product Trap, Proximity, Sophistication, Structural Transformation

JEL Classification: O14, O25, O57

Suggested Citation

Felipe, Jesus and Kumar, Utsav and Abdon, Arnelyn May, How Rich Countries Became Rich and Why Poor Countries Remain Poor: It’s the Economic Structure...Duh! (December 24, 2010). Bard College Levy Economics Institute Working Paper No. 644. Available at SSRN: https://ssrn.com/abstract=1730743 or http://dx.doi.org/10.2139/ssrn.1730743

Jesus Felipe (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Utsav Kumar

Asian Development Bank ( email )

6 ADB Avenue
Central and West Asia Department
Mandaluyong City
Philippines

HOME PAGE: http://works.bepress.com/kumarutsav/

Arnelyn May Abdon

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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