The Product Space and its Consequences for Economic Growth

In this paper, we test the assumption underlying the foundational models of trade that there always exist products through which countries can express their endowments and technology. We map the `space' of products in the world, and find it to be quite heterogeneous, with a central core and outer periphery. Moreover, we show that the way countries develop comparative advantage is far from random, and that the empirical rules observed herein predict, together with the structure of the product space, explain the lack of convergence in international income levels. Some developing countries produce in the periphery of the product space with few opportunities for diversification, whereas others have developed capabilities easily deployable in a wide range of products creating a path to convergence.