This paper presents a set of collaborative filtering algorithms that produce product recommendations to diversify and optimize a country's export structure in support of sustainable long-term growth. The recommendation system is able to accurately predict the historical trends in export content and structure for high-growth countries, such as China, India, Poland, and Chile, over 20-year spans. As a contemporary case study, the system is applied to Paraguay, to create recommendations for the country's export diversification strategy.
diversification and growth (e.g. Hausmann & Klinger 2007 , Hidalgo & Hausmann 2009 ). Like the current paper, this strand of research seeks to understand a country’s diversification potentials by looking at the relatedness among products. But there are two key differences. The first is a technical one. The product-spaceliterature uses a probability formula to represent the relatedness, or proximity between two products. 1 While this approach is easy to understand and makes the subsequent analysis computationally simple, it is at the cost of not fully using the
But there are two key differences. The first is regarding the efficiency in the use of information contained in the trade data. The product-spaceliterature uses a probability formula to represent the relatedness, or proximity between two products. 3 While this approach features a clean, easy-to-understand formula and makes subsequent analyses computationally simpler, it is at the cost of not fully exploiting the information contained in the data matrix of country-product exports. In contrast, the product-based KNN algorithm in the present paper makes more
This paper studies the relationship between export structure and growth performance. We design an export recommendation system using a collaborative filtering algorithm based on countries' revealed comparative advantages. The system is used to produce export portfolio recommendations covering over 190 economies and over 30 years. We find that economies with their export structure more aligned with the recommended export structure achieve better growth performance, in terms of both higher GDP growth rate and lower growth volatility. These findings demonstrate that export structure matters for obtaining high and stable growth. Our recommendation system can serve as a practical tool for policymakers seeking actionable insights on their countries’ export potential and diversification strategies that may be complex and hard to quantify.