Abstract for “Shifts in Comparative Advantage and Industrial Structures when Production is Internationally Fragmented”

Until recently, there was a close relationship between a country's comparative advantages and its export structures. Standard theories of international trade would predict that a country exports those products that make intensive use of its abundant production factors. But in a world in which production processes are being fragmented across countries, this no longer holds true. Rather than specialising in the production of particular goods, countries specialise in carrying out particular activities in the production chains and trade in tasks rather than in products. This has deep consequences for our thinking about how the industrial structure of countries evolve over time, and how international trade impacts the pace of structural change. In this paper I introduce a new empirical framework to analyse the process of structural change driven by international trade, when production is fragmented, by extending the work of Hidalgo et al. (2007). Hidalgo et al. (2007) develop the so-called 'product space ' framework to describe the stages of changes in industrial structures when a country develops. The main idea is that changes in industrial production structures are path-dependent and the shifts in production from one product to another differ in their feasibility. They trace out these paths empirically by using the correlations in revealed comparative advantage (RCA) based on the gross export of different products. A low correlation in RCA between tw