Catalogue of Diversification Opportunities 2022
How to use this catalogue?
The catalogue presents information on four main areas:
- Basic statistics regarding diversification.
- Potential new sectors for diversification considering all products, and the markets that offer growing export opportunities.
- Potential new sectors for diversification considering only agri-business products, and the markets that offer growing export opportunities.
- Examples of potential new products with higher export opportunities.
This catalogue presents potential new products for diversification for 233 economies based on the analysis of their economic complexity and position in the product space. Its objective is to inform governments, private sector and other stakeholders of the national innovation systems on possible directions for technological transformation of these economies.
Technological transformation happens through the establishment of a production that is new to the country (product innovation resulting in economic diversification) or the modification in the way that a product is produced (process innovation) to increase productivity and reduce costs. Both forms of innovation also trigger changes in income, consumption, employment and output, which result in structural economic change.
Technological transformation drives structural transformation when process and product innovation results in a change in the structure of the economy in which employment and output move from low productivity sectors to existing or new sectors that are more productive (associated with higher levels of technology). Innovation is the combination of existing technologies in new configurations or economic activities.
This combination usually requires the exchange of knowledge among firms, research centres, universities, governments, consumers, which are the main actors of the national innovation systems. Firms (and their entrepreneurs) have the key role of taking the risk to innovate (bringing a new good or service to the market).
The decision to innovate depends on many factors, not only the availability and access to technology. Path dependency is a characteristic of innovation, given that it requires a combination of existing technologies. Larger jumps in innovation, in which some of the technologies combined are not available in the economy and have to be learned or transferred from abroad, require more support from Governments to facilitate innovation. Incentives for innovation are affected by the global demand for new or improved products.
Product innovation (or imitation) is critical for structural transformation, by diversifying the economy adding more productive sectors. Considering that each product requires specific capital- and labour-embodied technologies to be produced, the more diversified an economy, the higher its technological level.
The information about the level of diversification and how common is the exports of the country can be used to compute indices that serve as a proxy of the level of technologies in the economy (or productive capacities) or the so-called economic complexity (Hidalgo and Hausmann, 2009; Tacchella et al., 2012).
Indices are also used to estimate the level of technology that goes into the production of each product. More complex products are considered to require higher levels of technology. Development is associated with diversification towards products that have above average complexity in the country (Freire, 2017).
Development policies should be designed to facilitate that process. Their implementation involves the selective promotion of new economic activities through targeted industrial policies. That requires the identification of the appropriate sectors and products to target based on the productive structure of the country and changes in global demand.