Export Diversification in Algeria
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They are easier to move toward because they use capabilities similar to those of the nonhydrocarbon export sectors already present in Algeria (Hausmann and Klinger 2007). Some of the very nearby products are rather unsophisticated. This is not surprising, as Algeria is concentrated in a peripheral part of the product space that is dominated by unsophisticated products. Products with a higher level of sophistication and greater growth-generating potential would require longer jumps. This can be observed in figure 4.11 (see color insert), which shows the distance of each nonexported product from Algeria’s current position in the product space on the x-axis. Products farther to the left are closer for Algeria. The y-axis indicates the product’s sophistication. A line shows the point at which sophistication is equal to the country’s overall EXPY. Products above this line are more sophisticated than the overall export basket. From the point of view of adding valuable new exports to the current basket, the ideal location on this plane is the upper-left quadrant, where goods are close and highly sophisticated. The figure reveals the tradeoff between proximity and export sophistication: the products that are closest to the current export basket (and therefore farther to the left) are easiest to move toward but unsophisticated; the more sophisticated products are farther away from the current structure of production. There is an efficient frontier in this tradeoff. The most attractive opportunities for structural transformation are on or near this frontier. A second tradeoff is between proximity (inverse measure from distance) and strategic value (see annex). As the product space maps show, in terms of their connectedness, not all goods are created equal. Some products are in a dense part of the product space, meaning that they are intensive in capabilities that are easily deployed to a wide range of other goods. The implication is that successfully producing these goods would create capabilities with significant value for other new products. Other products are located in the periphery; successfully producing them would offer little in terms of future export diversification, even if they are highly valuable in their own right (that is, have a high product–level measure of sophistication, or PRODY). We analyze this tradeoff from the point of view of Algerian firms (figure 4.12; see color insert). We measure the strategic value of every good not currently exported by how much open forest would increase if that good were added to the export basket. If a product is closely connected to a wide range of other valuable products not currently exported, production of it would result in a large increase in open forest. It would