IDEAS home Printed from https://ideas.repec.org/a/eee/respol/v51y2022i8s0048733320302286.html
   My bibliography  Save this article

Production Ability and economic growth

Author

Listed:
  • Bustos, Sebastián
  • Yıldırım, Muhammed A.

Abstract

Cities and countries undergo constant structural transformation. Industries need many inputs, such as regulations, infrastructure or productive knowledge, which we call capabilities. And locations are successful in hosting industries insofar as the capabilities that they can provide. We propose a capabilities-based production model and an empirical strategy to measure the Sophistication of a product and the Production Ability of a location. We apply our framework to international trade data and employment data in the United States, recovering measures of Production Ability for countries and cities, and the Sophistication of products and industries. We show that both country- and city-level measures have a strong correlation with income and economic growth at different time horizons. Product Sophistication is positively correlated with indicators of human capital and wages. Our model-based estimations predict product appearances and disappearances through the extensive margin.

Suggested Citation

  • Bustos, Sebastián & Yıldırım, Muhammed A., 2022. "Production Ability and economic growth," Research Policy, Elsevier, vol. 51(8).
    • Handle: RePEc:eee:respol:v:51:y:2022:i:8:s0048733320302286
    DOI: 10.1016/j.respol.2020.104153
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0048733320302286
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.respol.2020.104153?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Teresa C. Fort & Justin R. Pierce & Peter K. Schott, 2018. "New Perspectives on the Decline of US Manufacturing Employment," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 47-72, Spring.
    2. Pol Antras & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," American Economic Review, American Economic Association, vol. 102(3), pages 412-416, May.
    3. Michael Porter, 2003. "The Economic Performance of Regions," Regional Studies, Taylor & Francis Journals, vol. 37(6-7), pages 549-578.
    4. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    5. Archibugi, Daniele & Coco, Alberto, 2005. "Measuring technological capabilities at the country level: A survey and a menu for choice," Research Policy, Elsevier, vol. 34(2), pages 175-194, March.
    6. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    7. Lall, Sanjaya, 2003. "Indicators of the relative importance of IPRs in developing countries," Research Policy, Elsevier, vol. 32(9), pages 1657-1680, October.
    8. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    9. Jean Imbs & Romain Wacziarg, 2003. "Stages of Diversification," American Economic Review, American Economic Association, vol. 93(1), pages 63-86, March.
    10. Meghnad Desai & Sakiko Fukuda-Parr & Claes Johansson & Fransisco Sagasti, 2002. "Measuring the Technology Achievement of Nations and the Capacity to Participate in the Network Age," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 3(1), pages 95-122.
    11. Ron Boschma, 2017. "Relatedness as driver of regional diversification: a research agenda," Regional Studies, Taylor & Francis Journals, vol. 51(3), pages 351-364, March.
    12. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    13. Fleming, Lee & Sorenson, Olav, 2001. "Technology as a complex adaptive system: evidence from patent data," Research Policy, Elsevier, vol. 30(7), pages 1019-1039, August.
    14. Teresa C. Fort, 2017. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 650-687.
    15. Boschma, Ron & Capone, Gianluca, 2015. "Institutions and diversification: Related versus unrelated diversification in a varieties of capitalism framework," Research Policy, Elsevier, vol. 44(10), pages 1902-1914.
    16. Sebastián Bustos & Charles Gomez & Ricardo Hausmann & César A Hidalgo, 2012. "The Dynamics of Nestedness Predicts the Evolution of Industrial Ecosystems," PLOS ONE, Public Library of Science, vol. 7(11), pages 1-8, November.
    17. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    18. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 489-530.
    19. Lee, Chang-Yang, 2018. "Geographical clustering and firm growth: Differential growth performance among clustered firms," Research Policy, Elsevier, vol. 47(6), pages 1173-1184.
    20. Petralia, Sergio & Balland, Pierre-Alexandre & Morrison, Andrea, 2017. "Climbing the ladder of technological development," Research Policy, Elsevier, vol. 46(5), pages 956-969.
    21. Hausmann, Ricardo & Hidalgo, Cesar, 2014. "The Atlas of Economic Complexity: Mapping Paths to Prosperity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262525429, December.
    22. Pierre-Alexandre Balland & David Rigby, 2017. "The Geography of Complex Knowledge," Economic Geography, Taylor & Francis Journals, vol. 93(1), pages 1-23, January.
    23. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
    24. Pierre-Alexandre Balland & Ron Boschma & Joan Crespo & David L. Rigby, 2019. "Smart specialization policy in the European Union: relatedness, knowledge complexity and regional diversification," Regional Studies, Taylor & Francis Journals, vol. 53(9), pages 1252-1268, September.
    25. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    26. Ricardo Hausmann & César Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, vol. 16(4), pages 309-342, December.
    27. Pierre-Alexandre Balland & Cristian Jara-Figueroa & Sergio G. Petralia & Mathieu P. A. Steijn & David L. Rigby & César A. Hidalgo, 2020. "Complex economic activities concentrate in large cities," Nature Human Behaviour, Nature, vol. 4(3), pages 248-254, March.
    28. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    29. Beata S. Javorcik & Alessia Lo Turco & Daniela Maggioni, 2018. "New and Improved: Does FDI Boost Production Complexity in Host Countries?," Economic Journal, Royal Economic Society, vol. 128(614), pages 2507-2537, September.
    30. Schott, Peter & Yang, Natalie & Eckert, Fabian & Fort, Teresa, 2020. "Imputing Missing Values in the US Census Bureau's County Business Patterns," CEPR Discussion Papers 14352, C.E.P.R. Discussion Papers.
    31. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
    32. Delgado, Mercedes & Mills, Karen G., 2020. "The supply chain economy: A new industry categorization for understanding innovation in services," Research Policy, Elsevier, vol. 49(8).
    33. Ron Boschma, 2017. "Relatedness as driver behind regional diversification: a research agenda," Papers in Evolutionary Economic Geography (PEEG) 1702, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2017.
    34. César Hidalgo & Pierre-Alexandre Balland & Ron Boschma & Mercedes Delgado & Maryann Feldma & Koen Frenken & Edward Glaeser & Canfei He & Dieter F. Kogler & Andrea Morrison & Frank Neffke & David Rigby, 2018. "The Principle of Relatedness," Papers in Evolutionary Economic Geography (PEEG) 1830, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2018.
    35. Diodato, Dario & Neffke, Frank & O’Clery, Neave, 2018. "Why do industries coagglomerate? How Marshallian externalities differ by industry and have evolved over time," Journal of Urban Economics, Elsevier, vol. 106(C), pages 1-26.
    36. Matthieu Cristelli & Andrea Tacchella & Luciano Pietronero, 2015. "The Heterogeneous Dynamics of Economic Complexity," PLOS ONE, Public Library of Science, vol. 10(2), pages 1-15, February.
    37. Tacchella, A. & Cristelli, M. & Caldarelli, G. & Gabrielli, A. & Pietronero, L., 2013. "Economic complexity: Conceptual grounding of a new metrics for global competitiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1683-1691.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qianqi Xu & Peng Xu & Cunkuan Bao, 2023. "Multifaceted Pathways of Carbon Emission Reduction Policies: A Study Based on the Decoupling Effect and fsQCA Method in the Yangtze River Delta Urban Agglomeration," Sustainability, MDPI, vol. 15(18), pages 1-15, September.
    2. Hidalgo, César A., 2023. "The policy implications of economic complexity," Research Policy, Elsevier, vol. 52(9).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sebastian Bustos & Muhammed A. Yildirim, 2019. "Production Ability and Economic Growth," CID Working Papers 110a, Center for International Development at Harvard University.
    2. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "Reprint of The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(8).
    3. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(3).
    4. Hausmann, Ricardo & Stock, Daniel P. & Yıldırım, Muhammed A., 2022. "Implied comparative advantage," Research Policy, Elsevier, vol. 51(8).
    5. Hidalgo, César A., 2023. "The policy implications of economic complexity," Research Policy, Elsevier, vol. 52(9).
    6. Pintar, Nico & Scherngell, Thomas, 2022. "The complex nature of regional knowledge production: Evidence on European regions," Research Policy, Elsevier, vol. 51(8).
    7. Pinheiro, Flávio L. & Hartmann, Dominik & Boschma, Ron & Hidalgo, César A., 2022. "The time and frequency of unrelated diversification," Research Policy, Elsevier, vol. 51(8).
    8. Zoran Utkovski & Melanie F Pradier & Viktor Stojkoski & Fernando Perez-Cruz & Ljupco Kocarev, 2018. "Economic complexity unfolded: Interpretable model for the productive structure of economies," PLOS ONE, Public Library of Science, vol. 13(8), pages 1-24, August.
    9. Antonios Garas & Sophie Guthmuller & Athanasios Lapatinas, 2021. "The development of nations conditions the disease space," PLOS ONE, Public Library of Science, vol. 16(1), pages 1-35, January.
    10. Castañeda, Gonzalo & Pietronero, Luciano & Romero-Padilla, Juan & Zaccaria, Andrea, 2022. "The complex dynamic of growth: Fitness and the different patterns of economic activity in the medium and long terms," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 231-246.
    11. Tom Broekel & Rune Dahl Fitjar & Silje Haus-Reve, 2021. "The roles of diversity, complexity, and relatedness in regional development – What does the occupational perspective add?," Papers in Evolutionary Economic Geography (PEEG) 2135, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Nov 2021.
    12. F. Colozza & R. Boschma & A. Morrison & C. Pietrobelli, 2021. "The importance of global value chains and regional capabilities for the economic complexity of EU-regions," Papers in Evolutionary Economic Geography (PEEG) 2139, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Dec 2021.
    13. Wonsub Eum & Jeong‐Dong Lee, 2022. "Alternative paths of diversification for developing countries," Review of Development Economics, Wiley Blackwell, vol. 26(4), pages 2336-2355, November.
    14. O’Clery, Neave & Kinsella, Stephen, 2022. "Modular structure in labour networks reveals skill basins," Research Policy, Elsevier, vol. 51(5).
    15. Balland, Pierre-Alexandre & Boschma, Ron, 2022. "Do scientific capabilities in specific domains matter for technological diversification in European regions?," Research Policy, Elsevier, vol. 51(10).
    16. Bahar, Dany & Rosenow, Samuel & Stein, Ernesto & Wagner, Rodrigo, 2019. "Export take-offs and acceleration: Unpacking cross-sector linkages in the evolution of comparative advantage," World Development, Elsevier, vol. 117(C), pages 48-60.
    17. Antonis Adam & Antonios Garas & Marina-Selini Katsaiti & Athanasios Lapatinas, 2023. "Economic complexity and jobs: an empirical analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 32(1), pages 25-52, January.
    18. Jason Deegan & Tom Broekel & Rune Dahl Fitjar, 2021. "Searching through the Haystack:The Relatedness and Complexity of Priorities in Smart Specialization Strategies," Economic Geography, Taylor & Francis Journals, vol. 97(5), pages 497-520, October.
    19. Eduardo Hernandez-Rodriguez & Ron Boschma & Andrea Morrison & Xianjia Ye, 2023. "Functional upgrading and downgrading in global value chains: Evidence from EU regions using a relatedness/complexity framework," Papers in Evolutionary Economic Geography (PEEG) 2316, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2023.
    20. Seung Hwan Kim & Jeong hwan Jeon & Anwar Aridi & Bogang Jun, 2022. "Factors that affect the technological transition of firms toward the industry 4.0 technologies," Papers 2209.02239, arXiv.org.

    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:respol:v:51:y:2022:i:8:s0048733320302286. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/respol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.