Identifying Smart Strategies for Economic Diversification and Inclusive Growth in Developing Economies. The Case of Paraguay

40 Pages Posted: 13 Mar 2019

See all articles by Dominik Hartmann

Dominik Hartmann

University of Sao Paulo (USP); University of Hohenheim; Fraunhofer IMW

Mayra Bezerra

Fraunhofer Gesellschaft

Flavio L. Pinheiro

NOVA IMS - Universidade Nova de Lisboa

Date Written: March 5, 2019

Abstract

A country’s productive structure determines its future path of economic diversification, economic growth, and income inequality. In this article, we identify Paraguay’s structural constraints and opportunities for economic diversification and inclusive growth. For this purpose, we advance methods from research on economic complexity and the product space to estimate how feasible and desirable are different types of new products and economic diversification strategies for Paraguay. To estimate the feasibility of different diversification opportunities, we measure the revealed comparative advantages and relatedness of 763 SITC products to Paraguay’s current product structure. To estimate the desirability of each product, we measure the expected level of income, economic complexity, technology and income inequality associated with these products. Our results indicate that despite Paraguay’s strong dependence on primary goods and resource-based manufactures, it has significant opportunities to diversify into more complex, high-income, and inclusive products. These opportunities include manufacturing products related to agricultural activities (such as machines for harvesting or food-processing) as well as chemical products (such as medicaments and vaccines). We present a scoreboard of feasible and desirable product options that helps to discuss different diversification strategies. Paraguay could for instance (1) only focus on the relatedness criteria; (2) further develop the products with intermediate capabilities; (3) promote diversification into related, higher income products; or (4) push towards complex and inclusive industries. Our results imply that only focusing on feasibility may lead developing countries like Paraguay further into an economic development trap, consisting in the focus on simple products and the large distance to high complexity and low inequality products. Instead promoting products that combine minimum standards regarding both feasibility and desirability criteria might be the best strategy for smart diversification and inclusive growth.

Keywords: Smart diversification, inclusive growth, product space, Paraguay

Suggested Citation

Hartmann, Dominik and Bezerra, Mayra and Pinheiro, Flavio L., Identifying Smart Strategies for Economic Diversification and Inclusive Growth in Developing Economies. The Case of Paraguay (March 5, 2019). Available at SSRN: https://ssrn.com/abstract=3346790 or http://dx.doi.org/10.2139/ssrn.3346790

Dominik Hartmann (Contact Author)

University of Sao Paulo (USP) ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

University of Hohenheim ( email )

Fruwirthstr. 48
Stuttgart, 70599
Germany

Fraunhofer IMW ( email )

Neumarkt 9
Leipzig, 04109
Germany

Mayra Bezerra

Fraunhofer Gesellschaft ( email )

Leonrodstrasse 54
D-80636 Munchen
Germany

Flavio L. Pinheiro

NOVA IMS - Universidade Nova de Lisboa ( email )

Nova Information Management School
Universidade Nova de Lisboa, Campus de Campolide
Lisbon, 1070-312
Portugal

HOME PAGE: http://www.novaims.unl.pt/

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