The structure and dynamics of the auto-parts industry: Evidence from Japan

The literature on economic complexity has shown that the structure of the economy is a strong determinant of diversification, growth, innovation, inequality, and many other major socio- economic outcomes. Most of the empirical analyses, however, remain at a very macro level. It is not clear whether key features of the structure and dynamics of the macroeconomy also apply at a more meso, or micro-level. In this study, we deep dive into the automotive components industry in Japan and contribute to the literature by analyzing within-product category complexity and by taking a dynamic approach to the product space. To achieve this objective, we use unique survey data containing detailed information on each auto part supplier’s product baskets to uncover the industry’s productive structure and the process underlying structural change. We compute and visualize the auto parts product space and confirm properties found for international and domestic economies - suggesting the existence of fractals. These properties include power–laws, nestedness, and core- periphery structures. Moreover, this study develops exploratory and econometric approaches, unifying the measures of product relatedness and product complexity, explaining the productive structure’s dynamic process due to capability accumulation. The empirical analyses reveal that the events of new product appearance are not random but are instead significantly contingent on the network topology of the product space, which in turn shapes its structure. In particular, the effects of the network topology have a significant impact on the development of more complex products with sophisticated capabilities.