Beneficiation vs. Knowledge-based: Dead ends and steppingstones to productive diversification

Sebastián Bustos () and Miguel Santos ()
Additional contact information
Sebastián Bustos: Harvard Growth Lab, Harvard University

No 13, Working Paper Series of the School of Government and Public Transformation from School of Government and Public Transformation, Tecnológico de Monterrey

Abstract: The global resurgence of industrial policy has revived the appeal of downstream diversification (beneficiation)—adding value to raw materials—as a development strategy. Despite this intuitive appeal, empirical evidence of its effectiveness remains scarce, with few real-world success stories. We address this gap through a novel empirical analysis of export product co-location and new relatedness metrics to explain observed diversification patterns. Our results show that product co-location patterns are driven primarily by similarities in occupational structures. Industries sharing high-skill occupations (and, to a lesser extent, non-tradable inputs) are strong predictors of diversification. Conversely, relatedness metrics based on value-chain linkages (existing upstream inputs) have weak to no predictive power. These findings suggest rethinking development strategies focused on adding value to raw materials. Instead, countries should promote industries that build on existing know-how—particularly those with similar occupational structures or non-tradable capabilities already present in the economy.

Keywords: Foreign industrial policy; productive diversification; beneficiation; knowledge-based development; export relatedness; occupational structures; economic complexity; value chains; development strategy (search for similar items in EconPapers)
JEL-codes: F14 L16 O14 O25 O33 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2025-10
New Economics Papers: this item is included in nep-int and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://egobiernoytp.tec.mx/sites/default/files/20 ... _diversification.pdf First version, 2025 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gnt:wpaper:13

Access Statistics for this paper

More papers in Working Paper Series of the School of Government and Public Transformation from School of Government and Public Transformation, Tecnológico de Monterrey Contact information at EDIRC.
Bibliographic data for series maintained by Fabian Fuentes-Rivas ().