A simpler ‘product space’

Position of Singapore and Timor Leste 2023

The product space in the complexity literature (Hidalgo, Hausmann and others) is, as one would expect, quite complex. This is why they examine country and regional dynamics on a static product space. A distinct advantage of the approach is that it incorporates proximity, which provides information on the ‘open forest’ or products which countries can ‘jump to’.

Teza’s approach focusses on diversity and ubiquity and provides an alternative view of the product space. The previous post examined Teza’s country entropy index, but there is a product version as well. The difference is in the weights. The country version uses product shares in the total exports of a country as weights while the product version uses a country’s share in world exports of a product as weights. The product entropy index (HpT) (optimized using Teza’s fixed-point algorithm) is a measure of ubiquity (high HpT – high ubiquity) and this can be plotted against worldwide exports of a product (vertical axis) to derive another type of product space. Then, as shown below, the products exported by a particular country, say Singapore (SGP) can be super-imposed on the ‘global export map’. The black dots represent the ‘global export map’ or all the over 5000 (HS 6-digit) products, and the blue dots are the products that Singapore exported in 2023. Horizontal and vertical lines represent world (black) and country (blue) medians.

The figures has four quadrants (counter-clockwise):

Q1: High ubiquity – High exports (petroleum oils, tomato sauces)

Q2: Low ubiquity – High exports (black tea, air-conditioners)

Q3: Low ubiquity – Low exports (fountain pens and nibs)

Q4: High ubiquity – Low exports (life jackets, paper clips)

The penetration rates represent the proportion of products in a quadrant exported by Singapore. And since Singapore is not the highest entropy country, countries like China, Germany and the United States export pretty much everything. Clearly, this approach suggests that diversity is important since this represents capabilities. Of countries are not ‘good at exporting’ everything. For all these countries, the country medians (blue lines) are very close to the world medians (black lines).[Please open all images in new tabs – WordPress appears to downsample images].

As a contrast to Singapore, the following figure shows ASEAN’s newest member Timor-Leste (TLS). In this case, most of the blue dots are in quadrant 1 – high exports and high ubiquity and compared to Singapore the country medians (blue) are further away from the world median (black lines). and lean much more towards quadrant one: high exports high ubiquity.

Unlike Hidalgo, Teza has little to say about policies or about where countries should move to next, but I suspect, Hidalgo’s story of transferrable skills and capabilities is also transferrable to Teza.

Regardless, it is quite clear what Timor-Leste needs to do. Have a plan – think long term. Move away from petroleum and start with manufacturing. Why? Because:

• The road to development passes through manufacturing
• Manufacturing demands more government provided public goods (infrastructure, electricity etc.)
• Manufacturing is a skills ladder
• Manufacturing is relatively better at creating jobs

Focus on skills (that firms demand), but don’t get into credentialism and degrees. Be pragmatic like Singapore. Singapore’s super-bureaucrat (now retired) Philip Yeo once told me that “When we started, our workers did not know English, so we taught them enough to make sure that they will not lose their limbs while operating the machines.” (Not an exact quote)

Promote tourism but make sure you don’t end up like Bali. Learn from ASEAN and integrate with ASEAN. It is the most dynamic region on the planet.

Notes

The figures are similar to figure 5 in Teza.

Sources

Trade data are from the BACII balanced trade database (HS 2022 (6-digit)).

Teza, G., Caraglio, M. & Stella, A.L., Entropic measure unveils country competitiveness and product specialization in the World trade web. Sci Rep 11, 10189 (2021).