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Why did some countries catch-up, while others got stuck in the middle? Stages of productive sophistication and smart industrial policies

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  • Hartmann, Dominik
  • Zagato, Ligia
  • Gala, Paulo
  • Pinheiro, Flavio L.

Abstract

Development studies on the middle-income trap have highlighted the challenges for developing economies to transform their productive systems from simple towards high value-added activities. Here, we use trade data of 116 countries to quantify the stages of productive sophistication and reveal the critical phase that countries encounter at intermediate levels of economic sophistication. Our results reveal that only five countries (i.e. Ireland, Israel, Hungary, Singapore, and South Korea) overcame the gravitation towards simple products and fully transformed their economies towards complex products between 1970 and 2010. They successfully made use of windows of opportunities in the digital and electronics sectors through smart industrial policies that promoted endogenous skills and access to international knowledge sources. In contrast, countries like Brazil or South Africa still struggle with the gravitation towards simple economic activities, social fragmentation, and a lack of coherent industrial policies.

Suggested Citation

  • Hartmann, Dominik & Zagato, Ligia & Gala, Paulo & Pinheiro, Flavio L., 2021. "Why did some countries catch-up, while others got stuck in the middle? Stages of productive sophistication and smart industrial policies," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 1-13.
    • Handle: RePEc:eee:streco:v:58:y:2021:i:c:p:1-13
    DOI: 10.1016/j.strueco.2021.04.007
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    More about this item

    Keywords

    Catching-up; Economic complexity; Economic growth; Industrial policies; Product space; Productive sophistication;
    All these keywords.

    JEL classification:

    • B20 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - General
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F10 - International Economics - - Trade - - - General
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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