The time and frequency of unrelated diversification

Abstract

Economic diversification—the process by which locations enter new economic activities—is known to be a combination of related and unrelated diversification. Related diversification is—on average—more frequent, but unrelated diversification is nevertheless considered important to avoid economic lock-in. Here, we study the frequency and timing of unrelated diversification using two international trade datasets at the country level. We find that related diversification is more frequent for countries at low levels of development but becomes less frequent as countries climb the complexity ladder. These findings contribute to our understanding of the role of relatedness in the diversification of economies at different levels of complexity.