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Promoting structural transformation: Strategic diversification vs laissez-faire approach

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  • Freire Junior, Clovis

    () (United Nations, Division for Sustainable Development, Department of Economic and Social Affairs, and UNU-MERIT, Maastricht University)

Abstract

Economic development is associated with structural transformation and the increase of complexity of production and exports. This paper examines whether strategic diversification is required to increase economic complexity or whether market incentives would be sufficient to drive this process of catching-up. The paper applies empirical methods of the strand of the literature on economic complexity to examine how path dependency and the demand for potential new products affect economic diversification. It argues that strategic diversification is required in cases when demand factors are very likely to create incentives for diversification towards less complex products, which hinders the increase of productive capacities of countries. The paper presents the results of analysis considering 221 economies and shows that less diversified economies would not be able to rely on market incentives alone. They have to strategically diversify towards more complex products, which require the selective promotion of economic activities through the use of targeted industrial, infrastructure, trade, investment and private sector development policies.

Suggested Citation

  • Freire Junior, Clovis, 2017. "Promoting structural transformation: Strategic diversification vs laissez-faire approach," MERIT Working Papers 037, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2017037
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    File URL: https://www.merit.unu.edu/publications/wppdf/2017/wp2017-037.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Diversification; Structural Transformation; Productive Capacities; Industrial Policy; Economic Development;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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