Export sophistication
Figure 1 provides a cross-country comparison of the actual and the expected sophistication level of the export basket, given their income per capita. The sophistication level of the export basket (EXPY) of a country captures its ability to export products produced and exported by the rich countries, to the extent that, in general, rich countries’ exports embody higher productivity and wages (Hausmann et al. 2007). The level of sophistication of a country’s export basket is calculated as the weighted average of the sophistication of the products (PRODY) exported.iii Figure 1 shows that the export baskets of China and India are more sophisticated than their income levels might suggest.
Figure 1. Export sophistication and GDP per capita
Diversification
Diversification is measured by the absolute number of products that a country exports with revealed comparative advantage (RCA). We consider that a country has revealed comparative advantage in a product when this measure is greater than one.iv Hidalgo et al. (2007) argue that more diversified countries have greater capabilities. These allow a country to acquire comparative advantage in other products. Figure 2 shows that both China and India are positive outliers in the sense that their export baskets are more diversified than one would expect given their income levels.
