Sunday, March 29, 2009

The Product Space map

The other interesting conversation I have been having this week on forums, reading about on blogs and talking about with friends has been on the topic of getting the people on the bottom of the pyramid to become wealthier so the per capita wealth goes up and hence the GDP.

The finance minister was picked on by people in forums for harping on growth rates. Unless we have a measure which can include happiness quotient you cannot distinguish between good growth and bad growth. Nevertheless, we know despite the fact that we stand fourth on the GDP right behind China, we languish way below around 130 on the per capita wealth. One of the key imperatives has become to get the GDP up rapidly while trying to ensure the growth comes from the bottom of the pyramid and not from the top and more importantly it is environmentally sustainable.

It has been pointed out that if India and China were to get their per capita up to wealthier levels there will be a shortage of commodities. So, as if the growth challenge was not enough, environmental sustainability has to be built into the growth. Less populated countries had the luxury to have one of the factors of production, Land, to be taken for granted. If they ran out of land they had colonies which provided land for their production needs. India and China have to consider this factor of production a scarcity which then makes them rely on Labour and Capital to increase their growth

Traditionally, the economies of poor and developing countries often depended almost exclusively on a handful of products at most. Why has it been so difficult for these countries to start up new activities suprring economic growth and lifting themselves out of poverty? Researchers have found that a country that has developed the means to generate and export one product can easily branch into the other provided it chose a set of products that leveraged the Capital and Labour developed for that product.

The resulting network, which the four researchers call the product space, maps out world exports. The map shows how industries gather in clusters according to how likely it is that that those industries thrive in the same countries. The rich countries of the industrialized world tend to have broad portfolios of industries, and accordingly occupy large areas of the product space, usually including much of the network's core. Fast-growing developing countries such as China, Thailand, and Hungary are strong in some of those central, well-connected regions. The poorest countries, especially those in sub-Saharan Africa, tend to specialize in a few of the peripheral products--such as oil for Nigeria and copper for Zambia

India would do well to draw out a product space map to identify the areas which can help speed up the growth and get us on the path to higher per capita. While we are at it lets also put in a carbon credit infrastructure, and yes, bring back the $1.5 trillion black money to double the GDP in one day.
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