Some New Views on Product Space and Related Diversification

TL;DR

This paper extends the product space and diversification literature by introducing the concept of country space, incorporating comparative advantage loss, proposing new relatedness indicators, and developing a bootstrap-based statistical test.

Contribution

It introduces the idea of country space, integrates comparative advantage loss into analysis, and develops new measures and tests for product space relatedness.

Findings

Country space has empirical and theoretical appeal.

Loss of comparative advantage is crucial in product space analysis.

New indicators and bootstrap test improve relatedness measurement.

Abstract

We aim to contribute to the literature on product space and diversification by proposing a number of extensions of the current literature: (1) we propose that the alternative but related idea of a country space also has empirical and theoretical appeal; (2) we argue that the loss of comparative advantage should be an integral part of (testing the empirical relevance of) the product space idea; (3) we propose several new indicators for measuring relatedness in product space; and (4) we propose a non-parametric statistical test based on bootstrapping to test the empirical relevance of the product space idea.