Polarization in the product space: Skill intensity and economic development

Abstract:

A country’s capacity to diversify into more sophisticated products depends both on the skills it has and the skills those products require. Here we introduce Product Skill Intensity, a measure that captures the average educational level of occupations involved in producing exported goods. This skill-based view of product sophistication complements existing complexity metrics and sheds light on the role of education in structural transformation. We show that Product Skill Intensity reveals a polarized structure in the Product Space (a network where commonly co-exported products are linked together). Rather than forming a core–periphery pattern, high- and low-skill products are polarized on opposite sides of the network. This pattern underscores the challenges that countries concentrated in lower-skilled products may face in transitioning to higher-skilled products. Our country-level measure of skill intensity is positively correlated with income per capita and a strong, robust predictor of future growth. We also show that the ability of low- and middle-income countries to diversify into more skill intensive products is significantly constrained by both their education levels and the position of their existing exports in the Product Space. Our findings offer new explanations for persistent development traps and highlight the enabling role of education in supporting structural transformation towards more sophisticated production.