HKS Faculty Research Working Paper Series
HKS Working Paper No. RWP10-045
November 2010
Abstract
Countries differ markedly in the diversification of their exports. Products differ in the number of
countries that export them, which we define as their ubiquity. We document a new stylized fact in
the global pattern of exports: there is a systematic relationship between the diversification of a
country’s exports and the ubiquity of its products. We argue that this fact is not implied by
current theories of international trade and show that it is not a trivial consequence of the
heterogeneity in the level of diversification of countries or of the heterogeneity in the ubiquity of
products. We account for this stylized fact by constructing a simple model that assumes that each
product requires a potentially large number of non-tradable inputs, which we call capabilities, and
that a country can only make the products for which it has all the requisite capabilities. Products
differ in the number and specific nature of the capabilities they require, as countries differ in the
number/nature of capabilities they have. Products that require more capabilities will be accessible
to fewer countries (i.e., will be less ubiquitous), while countries that have more capabilities will
have what is required to make more products (i.e., will be more diversified). Our model implies
that the return to the accumulation of new capabilities increases exponentially with the number of
capabilities already available in a country. Moreover, we find that the convexity of the increase in
diversification associated with the accumulation of a new capability increases when either the
total number of capabilities that exist in the world increases or the average complexity of
products, defined as the number of capabilities products require, increases. This convexity defines
what we term as a quiescence trap, or a trap of economic stasis: countries with few capabilities
will have negligible or no return to the accumulation of more capabilities, while at the same time
countries with many capabilities will experience large returns - in terms of increased
diversification - to the accumulation of additional capabilities. We calibrate the model to three
different sets of empirical data and show that the derived functional forms reproduce the
empirically observed distributions of product ubiquity, the relationship between the
diversification of countries and the average ubiquity of the products they export, and the
distribution of the probability that two products are co-exported. This calibration suggests that the
global economy is composed of a relatively large number of capabilities – between 23 and 80,
depending on the level of disaggregation of the data – and that products require on average a
relatively large fraction of these capabilities in order to be produced. The conclusion of this
calibration is that the world exists in a regime where the quiescence trap is strong.
Citation
Hausmann, Ricardo, and César A. Hidalgo. "Country Diversification, Product Ubiquity, and Economic Divergence." HKS Faculty Research Working Paper Series RWP10-045, November 2010.