The network maps show that economies tend to develop through closely
related products. A country such as Colombia makes products that are
well connected on the network, and so there are plenty of opportunities
for private firms to move in to, provided other parts of the business
climate allow it. But many of South Africa’s current exports–diamonds,
for example–are not very similar to anything.If the country is to develop new products, it will mean making a big leap. The data show that such leaps are unusual.
Tim Harford explains. Here are maps of product interrelations.
Colombia’s sort of a bad example to use when talking about countries and their main “industries,” heh heh.
Right, that’s why David Ricardo’s advice was wrong: if in 1817 Portugal has a comparative advantage in corks and Britain has a comparative advantage in steam engines, well, England can move into making steamships and locomotives and can become the richest and most powerful country in the world, while Portugal is stuck with a bunch of cork trees.
This data suggests that people are underestimating the difficulty of industrial policy more than they are underestimating its benefits.
And of course, here in the US, it seems that our somewhat irrational speculative booms play the role that industrial policy might play in other environments.
All that dark fiber from the tech boom that’s starting to see more use, all that housing built in areas with restrictive zoning laws, all might be social-welfare enhancing, even if they’re not profitable for the initial speculators.
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