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Identifying smart strategies for economic diversification and inclusive growth in developing economies: The case of Paraguay

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  • Hartmann, Dominik
  • Bezerra, Mayra
  • Pinheiro, Flávio L.

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.

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  • Hartmann, Dominik & Bezerra, Mayra & Pinheiro, Flávio L., 2019. "Identifying smart strategies for economic diversification and inclusive growth in developing economies: The case of Paraguay," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    • Handle: RePEc:zbw:hohdps:042019
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    Cited by:

    1. Hartmann, Dominik & Jara-Figueroa, Cristian & Kaltenberg, Mary & Gala, Paulo, 2019. "Mapping stratification: The industry-occupation space reveals the network structure of inequality," Hohenheim Discussion Papers in Business, Economics and Social Sciences 06-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Hartmann, Dominik & Zagato, Ligia & Gala, Paulo & Pinheiro, Flavio L., 2021. "Why did some countries catch-up, while others got stuck in the middle? Stages of productive sophistication and smart industrial policies," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 1-13.
    3. Ben-Hur Francisco Cardoso & Eva Yamila da Silva Catela & Guilherme Viegas & Fl'avio L. Pinheiro & Dominik Hartmann, 2023. "Export complexity, industrial complexity and regional economic growth in Brazil," Papers 2312.07469, arXiv.org.
    4. Gnangnon, Sèna Kimm, 2020. "Aid for Trade flows and Poverty Reduction in Recipient-Countries," EconStor Preprints 213807, ZBW - Leibniz Information Centre for Economics.
    5. David E. Bloom & Victoria Y. Fan & Vadim Kufenko & Osondu Ogbuoji & Klaus Prettner & Gavin Yamey, 2021. "Going beyond GDP with a parsimonious indicator: inequality-adjusted healthy lifetime income," Vienna Yearbook of Population Research, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna, vol. 19(1), pages 127-140.
    6. Dominik Hartmann & Flavio L. Pinheiro, 2022. "Economic complexity and inequality at the national and regional level," Papers 2206.00818, arXiv.org, revised Jun 2022.
    7. Moritz Breul & Carolin Hulke & Linus Kalvelage, 2021. "Path Formation and Reformation: Studying the Variegated Consequences of Path Creation for Regional Development," Papers in Evolutionary Economic Geography (PEEG) 2115, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2021.
    8. Hartmann, Dominik & Bezerra, Mayra & Lodolo, Beatrice & Pinheiro, Flávio L., 2019. "International trade, development traps, and the core-periphery structure of income inequality," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    9. JosŽ Luis Oreiro & Luciano Luiz Manarin & Paulo Gala, 2020. "Deindustrialization, economic complexity and exchange rate overvaluation: the case of Brazil (1998-2017)," PSL Quarterly Review, Economia civile, vol. 73(295), pages 313-341.

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