Economic growth is often associated with diversification of economic activities. Making a product in a country is dependent on having, and acquiring, the capabilities needed to make the product, making the process path-dependent. Taking an agnostic view on the identity of the capabilities, we derive a probabilistic model to describe the directed dynamic process of capability accumulation and product diversification of countries. Using international trade data, we identify the set of pre-existing products that enables a product to be exported competitively. This is the ecosystem of the product. We construct a directed network of products, the Eco-Space, where the edge weight is an estimate of capability overlap between products. We uncover transition products and a core-periphery structure, and show that low and middle-income countries move out of transition products and into the core of the network over time. Finally, we show that our network model is predictive of product appearances.
O'Clery, Neave, Muhammed A. Yildirim, and Ricardo Hausmann. "Productive Ecosystems and the Arrow of Development." September 2018.