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The pattern of structural change: testing the Product Space framework

Nicola Coniglio (), Raffaele Lagravinese, Davide Vurchio and Massimo Armenise

No 1708, Papers in Evolutionary Economic Geography (PEEG) from Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography

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.

Keywords: product space; structural change; trade specialisation; path-dependence; Italy (search for similar items in EconPapers)
JEL-codes: F1 R3 R11 R13 (search for similar items in EconPapers)
Date: 2017-04, Revised 2017-04
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http://econ.geo.uu.nl/peeg/peeg1708.pdf Version April 2017 (application/pdf)

Related works:
Journal Article: The pattern of structural change: testing the product space framework (2018) Downloads
Working Paper: The pattern of structural change: testing the Product Space framework (2017) Downloads
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