Country diversification, product ubiquity, and economic divergence

Countries differ in the diversification of their exports and products differ in the number of countries that export them -their ubiquity. We document a new stylized fact in the global pattern of exports: a relationship between the diversification of a country's exports and the ubiquity of its products. We argue that this is not implied by current theories of international trade and show that it is not a consequence of the heterogeneity in the level of diversification of countries or of the heterogeneity in the ubiquity of products. We account for this by constructing a model that assumes that each product requires a large number of non-tradable inputs, or capabilities, and that a country can only make the products for which it has all the requisite capabilities. Products differ in the number and specific nature of the capabilities they require, as countries differ in the number/nature of the capabilities they have. Products that require more capabilities are accessible to fewer countries (are less ubiquitous), while countries that have more capabilities have what is required to make more products (are more diversified). Our model implies that the return to the accumulation of new capabilities increases exponentially with the number of capabilities that a country has and that this convexity increases when either the total number of capabilities that exist in the world increases or the average complexity of products (the number of capabilities they require) increases. This defines a "quiescence trap" in which countries with few capabilities have negligible returns to the accumulation of new capabilities, while countries with many capabilities experience large returns to the accumulation of additional capabilities. We calibrate the model to three different sets and show that it reproduces the empirically observed distributions. We conclude that in our world the quiescence trap is strong.