Promoting structural transformation: Strategic diversification vs laissez-faire approach

Clovis Freire

No 2017-037, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

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.

Keywords: Diversification; Structural Transformation; Productive Capacities; Industrial Policy; Economic Development (search for similar items in EconPapers)
JEL-codes: O11 O14 O33 O38 O53 O57 (search for similar items in EconPapers)
Date: 2017-09-05
New Economics Papers: this item is included in nep-hme, nep-pke, nep-reg and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Promoting structural transformation: strategic diversification vs. laissez-faire approach (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2017037

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