Discovering new export activities in developing countries

Chapter one explores the role that uncertainty plays in the emergence of new products or services for export in developing countries. Using comparative case studies, I explore the degree to which entrepreneurs who discovered new export activities faced uncertainty, and what the nature of this uncertainty was. I then document how this uncertainty, when present, was resolved, and how this affected subsequent diffusion of the newly discovered activity. The cases reveal two important dimensions of uncertainty in the emergence of new export activities, and the reasons for lower inherent uncertainty suggests that a heterogeneous, multi-dimensional `product space' governs structural transformation. Chapter two estimates the structure of this product space empirically as the pattern of revealed relatedness of products at the global level, and establishes that it governs changes in the comparative advantage of nations over time. The product space is only partially explained by similarity in broad factor or technological intensities, suggesting that the relevant determinants are much more product-specific. Moreover, the pattern of relatedness of products exhibits very strong heterogeneity: there are parts of this product space that are dense while others are sparse. This implies that countries that are specialized in a dense part of the product space have an easier time at changing their revealed comparative advantage than countries that are specialized in more disconnected products.

Chapter three applies this concept of the product space to consider policies to simulate downstream processing, and shows that the empirical case for such forward linkage-based policies is weak. Forward linkages are of little importance in determining the discovery of new export activities. Moreover, the explanatory power of forward linkages is even smaller in sectors with high transport costs and in sectors classified as primary products or raw materials, which are the most common targets of forward linkage-based policies. These results suggest that the discovery of new export activities favors sectors with similar technological requirements, factor intensities, and other requisite capabilities that underlie the product space, not sectors connected in production chains, and there is little justification for focusing the search for new export activities based on forward linkages.