A methodology to assess the technological potential of structural transformation of the national economy

The authors develop a methodology for the measurement of a country's technological potential for structural transformations on the basis of the product space concept. The proposed еconomic-and-mathematical model enables the researcher to measure a country's technological capability to compete on the markets of medium- and high-technology products. Cross-country indicators of technological potential for structural transformations and technological capabilities for production of medium- and high-technology products are calculated on the basis of the proposed model. Technological capabilities for agricultural machinery in Ukraine are analyzed as an example. The measurement of a country's technological potential for structural transformations is based on the analysis of development level of its technological factors. The proposed indicator enables the researcher to measure a country's technological capabilities to develop medium- and high-technology industries as well as to assess the possibilities of the introduction of new industries to affect a country's technological space. This indicator makes it possible to compare the development level of technological factors for a particular country with that needed for a sustainable presence at the medium- and high-technology goods market. Among others, such factors include physical capital, appropriate infrastructure and labor force with the necessary knowledge and skills. According to the product space concept, the probability for a country to develop the manufacture of a new product depends on the distance from this product to those already successfully exported by the country. The main characteristics of this space are proximities and densities of goods, which are defined accordingly to their revealed comparative advantages. The technological capability to manufacture particular medium- or high-technology product is defined on the basis of comparison of its density to the weighted mean densities for the countries that are leading producers of this good at the world market. Using the product space characteristics and the technological capability indicators, the authors define the technology potential for structural change as the weighted mean product of the medium- and high-technology goods densities and the technological capabilities of countries for every good. The weights in this model are defined on the basis of the structure of the market of medium- and high-technology goods. The proposed methodology enables policy-makers to forecast the effects of economic policy measures creating incentives for the development of certain sectors and industries. It can be used as a tool for simulation of a possible increase in technological capability caused by the growth of particular industries or for the evaluation of risks resulting from slowing up. The proposed model is universal and can be used for any classification of goods. Since input data are freely available for most countries, the model can be used for comparative cross-country analysis and may be extended for the analysis of international and regional markets. The database obtained as a result of the authors' calculations allows to analyze technological capabilities of countries for 1031 products since 1996 and can be used as a scenario analysis tool in industrial policy making.