Smart diversification strategies differentiated by countries’ complexity

This paper evaluates production diversification trajectories and proposes an empirical rule for diversification in pursuit of increased economic complexity. It concludes that the growth gains from complexity are greatest in the early stages of economic development. Less complex countries, having limited productive capabilities, diversify into products that are relatively uncomplex and similar to their existing production structure, and this is an obstacle to economic growth. Countries of medium complexity are more willing to implement bold strategies, which makes them more competitive in more complex products. Principal component analysis was used to construct the diversification rule, which proved most accurate at formulating diversification strategies involving products similar to existing production structures. This result shows that production sophistication strategies are most useful when they take account of the productive limitations of economies.