Alternative related variety, macroeconomic factors and diversification: Extractive vs. non-extractive products

Export diversification is central to economic development. However, most resource-rich countries have failed to diversify. In understanding the determinants of diversification different strands of literature emerge. One view highlights the role of macroeconomic and trade-related factors linked to the Dutch disease, such as the real exchange rate, type of commodity, and international commodity prices (Agosin et al., 2012; Lederman & Maloney, 2007). Another perspective focuses on path dependence, primarily examining product relatedness measures. This perspective suggests that a nation's current productive capabilities shape its future production possibilities. The latter offers different advantages, such as analysing diversification at the product level instead of export concentration measures, which may be subject to several biases. However, this framework pays little attention to the determinants that shape a country’s productive capabilities, enabling product relatedness. This pa per introduces an alternative measure of product relatedness, adapting the approach proposed by Nomaler and Verspagen (2022) to encompass a broader set of unobservable characteristics. Our regression framework also integrates macroeconomic factors and relevant controls (i.e., international prices, exchange rate, energy and mineral dependency, GDP per capita) to explain diversification at the product level. We do this in a cross-country setting covering more than 5,000 products between 1995 and 2019; furthermore, we distinguish between different types of products to understand how variables affect diversification in non-extractive sectors vis-à-vis extractive sectors. Results demonstrate that our product relatedness measure is a robust predictor of diversification, especially in extractive sectors, which exhibit greater path dependence. However, macroeconomic factors, such as international prices, level of development, and commodity dependence, play a decisive role in explaining differences in diversification patterns, and excluding them may overestimate the predictive power of product relatedness

Innovation in mining: what are the challenges and opportunities along the value chain for Latin American suppliers?

The mining industry, considered a traditional and conservative industry with respect to innovation, finds itself at a turning point due to the increasingly complex challenges, such as declining ore grades. These challenges have created an imperative to innovate. Parallel to the above, several digital innovations are being implemented in many mining operations across the globe. Not only do these provide solutions to the existing problems but also radically transform mining processes, increasing efficiency, profitability, and the ability to comply with stricter regulations. The incorporation of mature and incipient technologies into the mining industry has opened up many opportunities for long-established firms as well as knowledge-based start-ups. This includes potential suppliers in countries where mining accounts for a significant share of the GDP but the development of productive linkages remains suboptimal, as in Latin American countries. While in recent years, some suppliers in Latin America have made important contributions to increasing innovation in the mining industry, most suppliers in the region have not been able to do so. This paper provides an overview of the innovation paradigm of the mining sector from a global perspective, i.e., how innovation processes take place in countries with a long-established technological leadership in the mining sector, such as Australia and Canada. Given the importance of suppliers in this process, a special attention is paid to innovation in various stages of the supply chain. This is in order to provide a departure point for identifying windows of opportunity for equipment and service suppliers in Latin America

Covid-19 in Central America: firm resilience and policy responses on employment

This paper examines how government support interacts with firm-level resilience capabilities in the reduction of layoffs among formal firms in Central America. Our analysis suggests that government support measures play a role in reducing the probability of layoffs among firms with only dynamic resilience capabilities (i.e., those that are developed after the pandemic onset). The effect of government support is not statistically different from the effect of static resilience capabilities alone (i.e., those that were present before the pandemic); thus, in firms with such capabilities, the effect of government support will be marginal. These results hold across sectors - exhibiting a marginally higher treatment effect in service sectors. Our results do not imply that Covid-19 supportive measures are to be disregarded, but instead raise the question of how government support policies could improve the allocation of support among firms in times of crises. Moreover, it underlines the necessity of policies that enhance resilience more broadly – a task that hints at structural issues and requires continuous government support in lieu of ad-hoc measures

The mining sector: Profit-seeking strategies, innovation patterns, and commodity prices

This study brings together existing evidence to identify the key features of innovation in the mining sector that directly result from its profit structure, which in turn depends strongly on commodity prices. We hypothesize two innovation responses to prices which we test against existing evidence found in recent literature and available industry data. We find two different innovation responses to prices: exploration and R&D investments increase as commodity prices rise, while the use of suppliers’ innovation intensifies when prices decrease.https://www.grips.ac.jp/list/jp/facultyinfo/iizuka-michiko