Economic Diversification: Explaining the pattern of ... · economic diversification. The model is used to study strategies to foster diversification in poorer countries, which could

DESA Working Paper No. 150ST/ESA/2017/DWP/150

August 2017

Economic Diversification: Explaining the pattern of diversification in the global economy and its implications for fostering diversification in poorer countries

Author: Clovis Freire1

1 United Nations, Division for Sustainable Development, 405 E. 42nd Street, New York 10017 NY, USA. [email protected]

D e p a r t m e n t o f E c o n o m i c & S o c i a l A f f a i r s

ABSTRACT

Economic diversification is very relevant for poorer developing countries to create jobs and foster economic development. That need has been recognized in key internationally agreed development goals. The empirical economic literature has identified several stylized facts about the pattern of diversification of economies, but the development of explanations for those patterns in general has been only loosely associated with economic theory on growth, trade, technology change and structural transformation. Making that connection is relevant because it could inform policymakers in developing countries in designing and implementing policies for promoting diversification. This paper presents a model of structural economic dynamics and endogenous technological change that is able to replicate empirical regularities related to economic diversification. The model is used to study strategies to foster diversification in poorer countries, which could help to better target action in the implementation of internationally agreed goals related to the economic diversification of these countries.

Keywords: Diversification, Economic Complexity, Structural Transformation, Productive Capacities, Economic Development.

CONTENTS

1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Empirical regularities and theoretical explanations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

3. Overview of the model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

4. Description of the model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

5. Replication of the stylized facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

6. Catch-up strategies of poorer countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

7. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appendix A. Variables of the model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Appendix B. Sensitivity analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Appendix C. Product complexity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

UN/DESA Working Papers are preliminary documents circulated in a limited number of copies and posted on the DESA website at https://www.un.org/development/desa/publications/working-paper to stimulate discussion and critical comment. The views and opinions expressed here-in are those of the author and do not necessarily reflect those of the United Nations Secretariat. The designations and terminology employed may not conform to United Nations practice and do not imply the expression of any opinion whatsoever on the part of the Organization.

Typesetter: Nancy Settecasi

UNITED NATIONS

Department of Economic and Social Affairs

UN Secretariat, 405 East 42nd Street

New York, N.Y. 10017, USA

e-mail: [email protected]

https://www.un.org/development/desa/publications/working-paper

Acknowledgements: I am grateful to Bart Verspagen and Bart Los for their advice in the development of the model presented in this paper. I thank two anonymous reviewers for their comments on the paper. I am also grate-ful to David Le Blanc for his comments on an earlier version of the paper. All errors are my own.

1

2

3

y = 524.94x0.5005

R² = 0.7766

10

100

1,000

10,000

100,000

0.0 0.1 1.0 10.0 100.0 1,000.0 10,000.0 100,000.0

Nu

mb

er o

f pro

du

cts,

log

arit

hm

sca

le

GDP ($ billion), logarithm scale

USADEU

CHNJPN

FRA

GBR

INDBRA

RUS

NLD

TUV

SAU

VEN

DZA

IRQDMA

SWZ

PLW

30

40

50

60

70

80

90

100

110

120

130

0 5,000 10,000 15,000 20,000 25,000 30,000

kc,1

-C

om

mo

nal

ity o

f p

rod

uct

s ex

po

rted

(nu

mb

er o

f co

un

trie

s ex

po

rtin

g a

sim

ilar

pro

du

ct m

ix)

kc,0 - Diversification (number of products)

Non-diversified countries

producing common products

Diversified countries producing common products

Non-diversified countries

producing uncommon

products

Diversified countries producing uncommon products

Mean=5,488Mean=82.34

USADEU

FRA

GBRITA

JPNCHE

NLD

CHN

IND

BRA

VNM

0

4

5

Household

sector

Production sector 1

Production sector 2

Production sector N

Research and Development sector (R&D)

labour

Products for domestic consumption

Combine existing technologies to create new products

…

Production sectors Exports

Imports

6

𝑁𝑘

𝐿𝑘

𝑙𝑗,𝑘

𝑐𝑗,𝑘

𝑀𝐾𝑗,ℎ,𝑘

𝑤𝑘

𝑤1 = 1

𝑝𝑗,ℎ,𝑘

𝑝𝑗,ℎ,𝑘 = 𝑙𝑗,𝑘𝑤𝑘 𝑀𝐾𝑗,ℎ,𝑘

𝑐𝑗,𝑘

𝑐𝑗,𝑘,ℎ

7

𝑐𝑗,𝑘 = ∑ 𝑐𝑗,𝑘,ℎ𝑅ℎ=1

𝑄𝑗,𝑘 = ∑ 𝑐𝑗,ℎ,𝑘𝑁ℎ𝑅ℎ=1

𝑐𝑗,𝑘

∑ (∑ (∑ 𝑐𝑗,𝑘,ℎ𝑅ℎ=1 𝑁𝑘 𝑝𝑗,𝑘,ℎ)𝑚

𝑗=1 )𝑅𝑘=1

∑ (∑ 𝑐𝑗,𝑘,ℎ𝑁𝑘𝑅𝑘=1 )𝑅

ℎ=1 = ∑ 𝑐𝑗,𝑘𝑁𝑘 𝑅𝑘=1

∑ 𝑄𝑗,𝑘𝑚𝑗=1 𝑙𝑗,𝑘 ≤ 𝐿𝑘

∑ 𝑙𝑗,𝑘(∑ 𝑐𝑗,ℎ,𝑘𝑁ℎ𝑅ℎ=1 ) ≤ 𝐿𝑘

𝑚𝑗=1

∑ 𝑐𝑗,𝑘,ℎ =𝑅ℎ=1 𝑐𝑗,𝑘

𝑐𝑗,𝑘,ℎ ≥ 0

8

𝐸𝑗,𝑘 = 𝑙𝑗,𝑘𝑄𝑗,𝑘

𝐸𝑘 = ∑ 𝐸𝑗,𝑘𝑚𝑗=1

𝑌𝑗,𝑘

𝑌𝑗,𝑘 = ∑ 𝑐𝑗,ℎ,𝑘𝑁ℎ𝑅ℎ=1 𝑝𝑗,ℎ,𝑘

𝑌𝑘 = ∑ 𝑌𝑗,𝑘𝑚𝑗=1

𝑦𝑘 =𝑌𝑘

𝑁𝑘

𝐸𝑥𝑝𝑗,𝑘

𝐸𝑥𝑝𝑗,𝑘 = ∑ 𝑐𝑗,𝑘,ℎ𝑁𝑘𝑅ℎ=1 𝑝𝑗,𝑘,ℎ

𝐸𝑥𝑝𝑘 = ∑ 𝐸𝑥𝑝𝑗,𝑘𝑚𝑗=1

𝑒𝑥𝑝𝑘 =𝐸𝑥𝑝𝑘

𝑁𝑘

𝑤𝑘 = 𝑤1

(∑ 𝑙𝑗,1𝐸𝑗,1

𝑚𝑗=1

𝐸1⁄ )

(∑ 𝑙𝑗,𝑘𝐸𝑗,𝑘

𝑚𝑗=1

𝐸𝑘⁄ )

9

Labour

costs

Markup

A B C A B C

Minimum

price

Step 1 – tentative prices Step 2 – Comparison and determination

A B C

final

prices

10

𝑆𝑃𝑘(𝑡) = ∑ ∑ ((𝑝𝑗,ℎ,𝑘(𝑡) − 𝑙𝑗,𝑘(𝑡)𝑤𝑘(𝑡))𝑄𝑗,𝑘(𝑡)/𝑤𝑘(𝑡))𝑚𝑗=1

𝑅ℎ=1

𝑆𝑃𝑘(𝑡) = ∑ ∑ (𝑙𝑗,𝑘(𝑡)(𝑀𝐾𝑗,ℎ,𝑘(𝑡) − 1)𝑄𝑗,𝑘(𝑡))𝑚𝑗=1

𝑅ℎ=1

𝐿𝐴𝑘(𝑡) = 𝐿𝑘(𝑡) − 𝐸𝑘(𝑡)

𝜖𝑘

𝜖𝑘(𝑡) =𝑚𝑖𝑛 (𝑆𝑃𝑘(𝑡),𝐿𝐴𝑘(𝑡))

𝐿𝑘(𝑡)

𝜕𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝜕𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

𝜕𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

(𝑡) + 𝜕𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

(𝑡) = 1

0 ≤ 𝜕𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

(𝑡) ≤ 1; 0 ≤ 𝜕𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠(𝑡) ≤ 1

𝜕𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

(𝑡) = 𝐸𝑘(𝑡)/𝐿𝑘(𝑡)𝜕𝑘

𝑝𝑟𝑜𝑑𝑢𝑐𝑡(𝑡) = 1 − 𝐸𝑘(𝑡)/𝐿𝑘(𝑡)

𝜎𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝜎𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛


(𝑡) + 𝜎𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

(𝑡) = 1

0 ≤ 𝜎𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

(𝑡) ≤ 1; 0 ≤ 𝜎𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛(𝑡) ≤ 1

11


(𝑡) = 𝑚𝑘(𝑡)/𝑚(𝑡)

𝜎𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛(𝑡) = 1 − 𝑚𝑘(𝑡)/𝑚(𝑡)

𝑚𝑘

𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛


(𝑡) + 𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

(𝑡) = 1

0 ≤ 𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

(𝑡) ≤ 1; 0 ≤ 𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛(𝑡) ≤ 1

𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠(𝑡) = 𝑇𝐹𝑘(𝑡)/𝑚𝑘(𝑡)

𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛(𝑡) = 1 − 𝑇𝐹𝑘(𝑡)/𝑚𝑘(𝑡)

𝑇𝐹𝑘

𝜆𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

𝜖𝑘𝜕𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠


𝑁𝑘

𝐸𝑗,𝑘/𝐸𝑘

𝑋𝑗,𝑘 ~ 𝑃(𝜖𝑘𝜕𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠


𝑁𝑘(𝐸𝑗,𝑘/𝐸𝑘) 𝜆𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

)

0 < 𝑟𝑑𝑐𝑗,𝑘 < 1)

𝑙𝑗,𝑘(𝑡) = 𝑟𝑑𝑐𝑗,𝑘 𝑙𝑗,𝑘(𝑡 − 1)

12

𝑟𝑑𝑐𝑗,𝑘

𝑟𝑑𝑐𝑗,𝑘 ~ 𝑈(𝛽1, 1 ) 𝛽1

𝛽1

𝜆𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

𝜖𝑘𝜕𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

𝜎𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

𝑁𝑘 𝐸𝑗,𝑘/𝐸𝑘

𝑋𝑗,𝑘 ~ {𝑃(𝜖𝑘𝜕𝑘

𝑝𝑟𝑜𝑐𝑒𝑠𝑠 𝜎𝑘

𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛𝑁𝑘(𝐸𝑗,𝑘/𝐸𝑘) 𝜆𝑘

𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛)

0,

𝑙𝑗,𝑘(𝑡) = 𝑙𝑗,ℎ(𝑡)

𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝜖𝑘𝜕𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡


𝑁𝑘𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝑋𝑘 ~ 𝑃(𝜖𝑘 𝜕𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡


𝑁𝑘𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

)

𝑙𝑛𝑒𝑤

𝑙𝑛𝑒𝑤,𝑘(𝑡) =∑ 𝑙𝑗,𝑘(𝑡−1)

𝑚𝑘𝑗=1

𝑚𝑘(𝑡−1)

13

𝜆𝑘𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

φ

𝜖𝑘𝜕𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝜎𝑘𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛𝑁𝑘)

φ

φ

φ𝑗,𝑐(𝑡) = ∑ 𝑌𝑗,𝑘(𝑡−1)𝑅

𝑘=1 −∑ 𝑌𝑗,𝑘(𝑡−2)𝑅𝑘=1

∑ ∑ 𝑌𝑅𝑘≠𝑐 𝑖,𝑘

𝑚𝑖=1 (𝑡−1)−∑ ∑ 𝑌𝑅

𝑘≠𝑐 𝑖,𝑘𝑚𝑖=1 (𝑡−2)

∑ 𝑌𝑗,𝑘𝑅𝑘=1

∑ ∑ 𝑌𝑅𝑘≠𝑐 𝑖,𝑘

𝑚𝑖=1

𝑋𝑗,𝑘(𝑡)~ {𝑃(𝜖𝑘𝜕𝑘

𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝜎𝑘

𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛𝑁𝑘φ𝑗,𝑐𝜆𝑘𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛)

0, 𝑜𝑡ℎ𝑒𝑟𝑤𝑖𝑠𝑒,

𝑡′′ 𝑡′

𝑙𝑗,𝑘(𝑡′′) = 𝑙𝑗,ℎ(𝑡′)

𝑐𝑗,𝑘(𝑡) = 𝑐𝑗,𝑘(𝑡 − 1)𝑒𝑟𝑗,𝑘

𝑟𝑗,𝑘(𝑡)

14

𝑟𝑗,𝑘

𝑟1,𝑘 ≥ 𝑟2,𝑘 ≥ ⋯ ≥ 𝑟𝑚𝑘,𝑘

𝑚𝑎𝑥𝑐𝑗

𝑐𝑗,𝑘 𝑚𝑎𝑥𝑐𝑗

∀𝑗 ∃ 𝑚𝑎𝑥𝑐𝑗, 𝑐𝑗,𝑘(𝑡) = min (𝑐𝑗,𝑘(𝑡 − 1)𝑒𝑟𝑗,𝑘 , 𝑚𝑎𝑥𝑐𝑗)


𝑀𝐴𝑋𝑗

𝑚𝑎𝑥𝑐𝑗 > 𝑀𝐴𝑋𝑗 = max (𝑐𝑗,1(1), 𝑐𝑗,2(1), . . . , 𝑐𝑗,𝑚𝑘(1))


𝑚𝑎𝑥𝑐𝑗 ~ 𝑈(𝑀𝐴𝑋𝑗 , β 𝑀𝐴𝑋𝑗 )

β

𝑀𝐴𝑋𝑗 = 10 β𝑚𝑎𝑥𝑐𝑗

15

𝑟

{𝑟𝑗,𝑘(𝑡) > 0, 𝑖𝑓𝑒𝑥𝑝𝑘(𝑡 − 1) < 𝑦𝑘(𝑡 − 1)

𝑟𝑗,𝑘(𝑡) < 0, 𝑖𝑓𝑒𝑥𝑝𝑘(𝑡 − 1) > 𝑦𝑘(𝑡 − 1)

𝑟

{

𝑟𝑗,𝑘 ~ 𝑈(0, max(𝑟)), 𝑖𝑓𝑒𝑥𝑝𝑘(𝑡 − 1) < 𝑦𝑘(𝑡 − 1)

𝑟𝑗,𝑘 ~ 𝑈(− max(𝑟), 0), 𝑖𝑓𝑒𝑥𝑝𝑘(𝑡 − 1) > 𝑦𝑘(𝑡 − 1)

𝑟𝑗,𝑘 = 0, 𝑖𝑓𝑒𝑥𝑝𝑘(𝑡 − 1) = 𝑦𝑘(𝑡 − 1)

max(𝑟) 𝑟

𝛼

𝑡′′)𝑡′

𝑐𝑗,𝑘(𝑡′′) { > 0, 𝑖𝑓 𝑦𝑘(𝑡′′ − 1) ≥ 𝛼

= 0 , 𝑜𝑡ℎ𝑒𝑟𝑤𝑖𝑠𝑒

𝑠𝑖,𝑗

𝑠𝑖,𝑗

κ

𝑠𝑖,𝑗 ~ 𝑈(1 − κ, 1 + κ)

𝑐𝑗,𝑘(𝑡) = min (𝑠𝑖,𝑗 𝑐𝑗,𝑘(𝑡 − 1)𝑒𝑟𝑗,𝑘 , 𝑚𝑎𝑥𝑐𝑗)

𝑚𝑎𝑥𝑐𝑗(𝑡) = 𝑠𝑖,𝑗 𝑚𝑎𝑥𝑐𝑗(𝑡 − 1)

16

• 𝑙1 = 𝑙2 = ⋯ = 𝑙30 = {0.5, 0.5,0.5,0.5,0.5, 0.5,0.5,0.5,0.5,0.5}

• 𝑐1 = 𝑐2 = ⋯ = 𝑐30 =

{0.01, 0.01,0.01, 0.01,0.01, 0.01,0.01, 0.01,0.01, 0.01}

• 𝑤1 = $ 1

• β = 2

• 𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

= 𝜆𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

= 1/200

• 𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

= 𝜆𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

= 1/100

•

17

10 12 14 16 18 20 22 24 2610

0

101

102

103

Diversification (kc0 - number of products)

GD

P

10 12 14 16 18 20 22 24 2612

14

16

18

20

22

24

26

28

30


Avera

ge u

biq

uity (

kc1)

10 12 14 16 18 20 22 24 260

5

10

15

20

25

30

35

40

45


Em

plo

ym

ent

(perc

enta

ge o

f popula

tion)

10 12 14 16 18 20 22 24 260.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5


Consum

ption p

er

capita

10 12 14 16 18 20 22 24 260.41

0.42

0.43

0.44

0.45

0.46

0.47

0.48

0.49

0.5


Avera

ge labour

coeff

icie

nt

18

19

20


=1

100; 𝜆𝑘

𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛 =1

10

21


=1

200; 𝜆𝑘


20


=1

100; 𝜆𝑘


50


=1

200; 𝜆𝑘


100

22

23

-0.2 0

0

0.2

0.2

0.4

0.4

0.4

0.6

0.6

0.6

0.8

0.8

0.8

1

11.2

1.21.4

1.6

1.6

1

1

1.2

0.2

0.4

Configura

tion

Strategy

1 2 3 4 5 6 7 8A

B

C

D

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0

0

10

0

100

100

100

10

0

20

0

200

300

300

100

10

0

400

500

Configura

tion

Strategy

1 2 3 4 5 6 7 8A

B

C

D

0

100

200

300

400

500

600

50

50

50

50

10

0

100

100

100

15

0

150

200

200

250

300

350

100

Configura

tion

Strategy

1 2 3 4 5 6 7 8A

B

C

D

50

100

150

200

250

300

350

24

25

26

27

28

𝑁𝑘

𝐿𝑘

𝑙𝑗,𝑘

𝑐𝑗,𝑘

𝑀𝐾𝑗,ℎ,𝑘

𝑤𝑘

𝑝𝑗,ℎ,𝑘

𝑐𝑗,ℎ,𝑘

𝑄𝑗,𝑘

𝐸𝑗,𝑘

𝐸𝑘

𝑌𝑗,𝑘

𝑌𝑘

𝑦𝑘

𝐸𝑥𝑝𝑗,𝑘

𝐸𝑥𝑝𝑘

𝑒𝑥𝑝𝑘

• 𝑙1 = 𝑙2 = ⋯ = 𝑙10 = {0.5, 0.5,0.5,0.5,0.5, 0.5}

• 𝑐1 = 𝑐2 = ⋯ = 𝑐10 =

{0.01, 0.01,0.01, 0.01,0.01, 0.01}

29

•

• 𝑤1 = $ 1

• β = 2

𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝜆𝑘

𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛 = 𝜆𝑘

𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡 = 1/100


= 1/500

• 𝜆𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠

= 𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡

• 𝜆𝑘𝑝𝑟𝑜𝑐𝑒𝑠𝑠_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

= 𝜆𝑘𝑝𝑟𝑜𝑑𝑢𝑐𝑡_𝑒𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛

30

𝑘𝑐,𝑁 =1

𝐾𝑐,0∑ 𝑀𝑐𝑝𝑘𝑝,𝑁−1𝑝

𝑘𝑝,𝑁 =1

𝐾𝑝,0∑ 𝑀𝑐𝑝𝑘𝑐,𝑁−1𝑐

𝑃𝐶𝑂𝑀𝑃 =𝑘𝑝,5−𝑘𝑝,5̅̅ ̅̅ ̅̅

𝜎

𝑘𝑝,5̅̅ ̅̅ ̅ 𝜎

Economic Diversification: Explaining the pattern of ... · economic diversification. The model is used to study strategies to foster diversification in poorer countries, which could

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