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The pattern of structural change: testing the Product Space framework

Author

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  • Nicola D. Coniglio
  • Raffaele Lagravinese
  • Davide Vurchio
  • Massimo Armenise

Abstract

The set of available local capabilities determines what an economy produces today (its static comparative advantage) and, at the same time, defines the trajectories that the process of structural change may take in the future. The Product Space (PS) framework developed in recent seminal works by economists and physicists suggests that path dependence characterizes the evolution of the production basket (Hausmann and Klinger, 2007; Hidalgo et al. 2007). These authors represent economies as sets of productive capabilities that can be combined in different ways to produce different products. Countries progressively change their production baskets and move towards goods that require capabilities that are already available; on the contrary radical structural change rarely happens. In this paper, we analyse the evolution over time of the production baskets in 107 Italian provinces (NUTS 3) and perform the first test on the PS hypothesis of path dependence. We investigate whether new products entering the provincial production baskets are non-randomly related to initial production baskets. We confirm the general tendency of path dependence, but highlight at the same time that a sizable share of new products are an exception to this general pattern. These random entries over the PS are particularly interesting for industrial policy since they represent radical deviations from the initial comparative advantage. In the final part of the paper, we investigate using parametric analysis the product and provincial characteristics that determine these deviations from the PS pattern.

Suggested Citation

  • Nicola D. Coniglio & Raffaele Lagravinese & Davide Vurchio & Massimo Armenise, 2017. "The pattern of structural change: testing the Product Space framework," Papers in Evolutionary Economic Geography (PEEG) 1708, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Apr 2017.
  • Handle: RePEc:egu:wpaper:1708
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    File URL: http://econ.geo.uu.nl/peeg/peeg1708.pdf
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    References listed on IDEAS

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    1. Frank Neffke & Martin Henning & Ron Boschma, 2011. "How Do Regions Diversify over Time? Industry Relatedness and the Development of New Growth Paths in Regions," Economic Geography, Taylor & Francis Journals, vol. 87(3), pages 237-265, July.
    2. Ron Boschma & Asier Minondo & Mikel Navarro, 2013. "The Emergence of New Industries at the Regional Level in S pain: A Proximity Approach Based on Product Relatedness," Economic Geography, Taylor & Francis Journals, vol. 89(1), pages 29-51, January.
    3. Ron Boschma & Pierre-Alexandre Balland & Dieter Franz Kogler, 2015. "Relatedness and technological change in cities: the rise and fall of technological knowledge in US metropolitan areas from 1981 to 2010," Industrial and Corporate Change, Oxford University Press, vol. 24(1), pages 223-250.
    4. Ricardo Hausmann & Bailey Klinger, 2007. "The Structure of the Product Space and the Evolution of Comparative Advantage," CID Working Papers 146, Center for International Development at Harvard University.
    5. Gilles Duranton & Henry G. Overman, 2005. "Testing for Localization Using Micro-Geographic Data," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 1077-1106.
    6. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn, 2013. "Exports, capabilities, and industrial policy in India," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 939-956.
    7. Jesus Felipe & Utsav Kumar & Norio Usui & Arnelyn Abdon, 2013. "Why has China succeeded? And why it will continue to do so," Cambridge Journal of Economics, Oxford University Press, vol. 37(4), pages 791-818.
    8. Vicente Donoso & Víctor Martin, 2016. "Product relatedness and economic diversification in the USA: an analysis at the state level," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(2), pages 449-471, March.
    9. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
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    Cited by:

    1. Mathieu Steijn & Pierre-Alexandre Balland & Ron Boschma & David Rigby, 2019. "Technological Diversification of U.S. Cities during the Great Historical Crises," Papers in Evolutionary Economic Geography (PEEG) 1901, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2019.
    2. Ron Boschma, 2018. "The geographical dimension of structural change," Papers in Evolutionary Economic Geography (PEEG) 1839, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Nov 2018.
    3. Nicola Daniele Coniglio & Davide Vurchio & Nicola Cantore & Michele Clara, 2018. "On the evolution of comparative advantage: path-dependent versus path-defying changes," SERIES 01-2018, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Mar 2018.

    More about this item

    Keywords

    product space; structural change; trade specialisation; path-dependence; Italy;

    JEL classification:

    • F1 - International Economics - - Trade
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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