世界銀行-化風(fēng)險(xiǎn)為回報(bào)：脫碳技術(shù)的全球價(jià)值鏈多樣化（英）

PublicDisclosureAuthorizedPublicDisclosureAuthorized

PolicyResearchWorkingPaper10696

TurningRisksintoReward

DiversifyingtheGlobalValueChains

ofDecarbonizationTechnologies

SamuelRosenow

PennyMealy

WORLDBANKGROUP

InternationalFinanceCorporation

February2024

PolicyResearchWorkingPaper10696

Abstract

Reachingnet-zeroemissionsby2050requiresunprec-edentedscalingupintheglobaldeploymentofcriticaldecarbonizationtechnologies,suchassolarphotovoltaics,windturbines,andelectricvehicles.Thischallengeiscur-rentlyrifewithbothrisksandrewards:whilesecuringanadequatesupplyofthesetechnologieshasbecomeanurgentpolicypriorityformanycountries,theirhigh-growthglobalvaluechainsalsoofferlucrativebenefitsforthoseabletomeettheburgeoningglobaldemand.Althoughrecentpolicyresponseshavesoughttonearshoreproductiontoreducerisksandcapitalizeonrewards,thispaperinsteadlaysoutanevidence-basedstrategytohelpdiversifytheglobalvaluechainsofdecarbonizationtechnologiesacrosscountrieswithlatentproductioncapabilitiesandresource

endowments.Tothatend,itconstructsanewdatasetoftradedproducts,components,andmaterialsassociatedwithdecarbonizationtechnologies;developsnewindexescapturingcountries’currentexportstrengthsandfuturediversificationpotentialintheseglobalvaluechains;andhighlightsproductswithsupplyrisksduetohighmarketconcentrationlevelsandthosewithdevelopmentrewardsintermsoftheirpotentialforgrowth,knowledgespillovers,andtechnologicalupgrading.Takentogether,theevidencesupportstheideathatthereisplentyofopportunitytodiversifythesevaluechainsacrossalargernumberofcoun-triestoavoidtherisksassociatedwithrelianceononlyafewcountries.

ThispaperisaproductoftheInternationalFinanceCorporation.ItispartofalargereffortbytheWorldBankGrouptoprovideopenaccesstoitsresearchandmakeacontributiontodevelopmentpolicydiscussionsaroundtheworld.PolicyResearchWorkingPapersarealsopostedontheWebat

/prwp.Theauthorsmaybecontacted

atsrosenow@andpmealy@.

ThePolicyResearchWorkingPaperSeriesdisseminatesthefindingsofworkinprogresstoencouragetheexchangeofideasaboutdevelopmentissues.Anobjectiveoftheseriesistogetthefindingsoutquickly,evenifthepresentationsarelessthanfullypolished.Thepaperscarrythenamesoftheauthorsandshouldbecitedaccordingly.Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheInternationalBankforReconstructionandDevelopment/WorldBankanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.

ProducedbytheResearchSupportTeam

TurningRisksintoReward:Diversifyingthe

GlobalValueChainsofDecarbonizationTechnologies1

SamuelRosenowaandPennyMealyb

JELclassification:F14,F18,Q55

Keywords:EmpiricalStudiesofTrade;TradeandEnvironment;TechnologicalInnovation.

1.Introduction

Fortheworldtoreachnet-zeroemissionsby2050,theglobaldeploymentoflow-carbontechnologiessuchassolarphotovoltaics(PV),windturbinesandelectricvehicles(EVs)needstodramaticallyincrease.Currentprojections

suggestgrowthininstalledcapacityinsolarandwindwillneedtoincreasebyaround3-5-foldbetweennowand

2030,while18-foldincreasesareprojectedfortheglobalscale-upofEVs(IEA,2021).Unliketechnologiessuchas

nuclearandcarboncapture,usageandstorage(CCUS),persistentcostdeclinesinsolarPV,windturbinesandEVspaintapromisingandpredictablefuturefortheirdeployment:themoreweproducegloballyofthesetechnologies,thecheapertheybecome(Wayetal.,2022;LamandMercure,2022).

WefocusonthedecarbonizationvaluechainsofsolarPV,windturbinesandEVsforthreereasons.First,abroadconsensusexistsworldwidethatthesetechnologiesarecriticalinthegreentransition,irrespectiveofcountries’economicconditionsandpoliticalalignment.Thiscontrastswithgreenandenvironmentalgoodswhose

classificationiscontroversialandsubjecttocountries’politicalsensitivities.Second,participatinginthetradeof

1WethankStephaneHallegate,RalfMartin,ZeinabPartow,MarylaMaliszewska,NadiaRocha,AnaFernandes,

MichaelFerrantino,EmmanuelPouliquen,EstherNaikalandCamillaKnudsenforcomments.AichaLompo,CamilleDaPiedadeandSamuelEdetprovidedexcellentresearchassistance.Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheWorldBankoritsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBank,theirManagements,or

thegovernmentstheyrepresent.

aEconomist,InternationalFinanceCorporation,

srosenow@.

bSeniorEconomist,WorldBank,

pmealy@

2

thesevaluechainsoffersimportanteconomicadvantagesforcountries.Asglobaldemandisbeginningtoshift

awayfromfossil-fuelbasedproductionandtowardsthesetechnologies,developingthecapabilitiesto

competitivelyproduceproductsandassociatedcomponentscanhelpcountriesachievegreatereconomicgrowthandexportdiversificationprospects.Thisisespeciallytruefortechnologicallysophisticatedproductsastheyofferadvantagesfortechnologicalupgradingandknowledgespilloversintootherindustrialareas(Hidalgo&Hausmann,2009).Third,thesevaluechainsfacevulnerabilitytodisruptionssuchasnaturaldisasters,pandemics,conflict,andgeopoliticalevents.Thishighlightstheimportanceofidentifyingcountrieswithrequisitecapabilitiesandresourceendowmentstohelpdiversifyproductionandenhanceresilienceinthesevaluechains.Thiscanhelpensurethat

rewardsfromparticipatinginhigh-growthglobalvaluechainsaresharedmorebroadly.

However,policymakersaroundtheworldareracingtore-engineerthe

relationship

betweenmarketsandthe

stateinindustriescriticalforthegreentransition.Thisisapparentinthegrowinguseofsubsidiesandexport

restrictionsindevelopingcountriestocornerthemarketfordecarbonizationtechnologies.Conversely,recent

industrialpolicyresponsesindevelopedcountriesseektohelpmarketsreconcileeconomicprosperityandclimateobjectiveswhilereducingdependencies.Theseandotherexamplesillustratehownationalpolicymakingseekstolocalizethesesupplychainsdomestically.Thiscouldweakentheefficientallocationofcapitalandeconomiesof

scale(TagliapietraandVeugelers,2023).Itcouldalsoexcludedevelopingcountrieswithlimitedfiscalcapacity,

unabletoengageinasubsidyracewithindustrialnationsdespitetheirlocalenergyresources,criticalinputsintheproductionofenergy-intensiveindustrialcommodities.

Despitecallsformorediversifiedvaluechainsindecarbonizationtechnologies(IEA,2023;IMF,2022),therehas

beenlimitedworktoidentifythecountriesthatarebestplacedtoincreasetheirparticipationintheproductionofthesetechnologiesortohighlightwhatthegrowthopportunitiescouldlooklikeforindividualcountries.To

addressthisgap,thispapermakesseveralcontributions.First,weconstructanewdatasetofkeytradedproducts,componentsandmaterialsassociatedwithsolarPV,windturbinesandEVsandmapthistocountrytradedata.

Thisenablestheexplorationofhistoricalandcurrenttradepatternsfor74high-income,106middle-incomeand26

low-incomecountriesbetween2005-2021intheseglobalvaluechainsandintroducesanewdatasetforfuture

tradeanalysis.Overall,wefindthatexportmarketconcentrationindecarbonizationvaluechainsisnothigh

comparedtoothertradedproducts,althoughafewproduct-specificvulnerabilitiespersist.Thus,concentrationisnotharmfulperse;onlyexcessiveconcentrationrepresentsariskforsecurityofsupply.Thisimpliesthata

minimumlevelofdiversificationishelpfulforresiliencereasonsamidtoday’srisingeconomicnationalism.

Second,wedevelopnovelindicesthatsummarizethebreadthanddepthofcountries’currentexportstrengthsinthesevaluechains.WhileChina,GermanyandtheUSaretheleadersinexportcompetitivenessacrossallthree

technologies,middle-incomecountriessuchasTürkiye,Mexico,India,SouthAfricaandBrazilhaveexport

strengthsinavarietyofkeyvaluechainproducts,componentsandmaterialsandarewellpositionedtocapitalizeontheprojectedfuturegrowthintheseareas.Wealsodevelopasimilarsetofnewindicesthataimtocapturethebreadthanddepthofcountries’futurediversificationpotentialinthesevaluechains.Usingpastevolutionsand

hindcasting,weshowthatcountriesscoringhigherinopportunitiesindicesaresignificantlymorelikelytodevelopgreatercompetitivenessinthesubsequentperiods.Countriesthatleadindiversificationpotentialincludethe

Netherlands,France,andSpain,butalsoupperandlowermiddle-incomecountries,suchasChina,Indiaand

Türkiye.Theseinsightscomplementexistingworkdocumentingcurrentproductiontrendsinsupplychainsof

energytechnologies(e.g.,IEA,2022a;IEA,2022b).Ourproductmapping,however,ismoregranularandbroaderinscope,usingthefinestinternationallyharmonizedproductclassificationavailableinsolarPV,windturbinesand

EVs.Thisallowspolicymakerstoidentifyproductsthatmaypresentbottlenecksalongeachvaluechainandcountriesthatarebestplacedtoimprovediversificationandresilience.

Third,wesetoutananalyticalframeworktoidentifycountriesthatcouldbebestplacedtohelpdiversifyaspecificproductmarket.Forexample,althoughtheglobalproductionofphotovoltaiccellsishighlyconcentratedinasmallnumberofcountries,weshowthatMalaysia,Vietnam,andThailandcouldhavesignificantpotentialtoexpand

3

theirproductionandexports,diversifyingthenumberofsuppliersforthiscriticalproduct.Wealsolookat

opportunitiesatthecountrylevelandidentifyproductopportunitiesthatcouldbeadvantageousintermsoftheirtechnologicalsophistication,growthprofileandalignmentwithacountry’sexistingexportcapabilities.Indoingso,

ouranalysisrevealsgranular,product-specificopportunitiesforexploitingexistingandlatentnichesin

decarbonizationtechnologiesandhelpsevaluatetheirtrade-offs.ThisframeworkbuildsontheworkofMealyandTeytelboym(2022)thatappliedasimilarapproachtoproductsthatexhibitenvironmentalbenefits.Moreover,itcontributestothebroaderliteraturedrawingondata-drivenapproachestoinformgreenindustrialpolicyand

economicdevelopmentstrategies(MontresorandQuatraro,2019;Ballandetal.,2019).

Ourworkisnotwithoutlimitations.First,whileourproductmappingofvaluechainsassociatedwithdecarbonizationtechnologiesreliesonthe6-digitoftheHarmonizedSystem(HS),themostdetailed

internationallystandardizedproductclassification,productsmayhavedualuse.Thismeansthataproductmay

haveadditionalapplicationsorpurposesbeyondthoserelevanttothevaluechainsofdecarbonization

technologies.Second,althoughtheproductclassificationofthe6-digitHSisremarkablydetailed,aHS6-digitcodeisnotasingleproductbutanaverageofdifferentiatedproductvarieties.Asaresult,ourproductdefinitionmaybetoobroadtoclearlyidentifyproductsassociatedwithdecarbonizationtechnologies.Asitiscurrentlynotpossibletodeterminewhatproportionoftradeineachproductrelatesprimarilytodecarbonizationtechnologyusage,thetotalproductexportvolumesshowninthispapershouldbeconsideredasanupperbound.Thecollectionofmoredetailedinput,outputorsupplychaindatathatiscomparableacrosscountrieswouldallowformoreaccurate

depictionsoftheseglobalvaluechains.Finally,lagsintradedatashouldalsobekeptinmindasrecentdevelopmentsand/orinterventionsarenotaccountedfor.

2.Results

2.1Mappingglobalvaluechainsofkeydecarbonizationtechnologies

ToanalyzetradepatternsintheglobalvaluechainsforsolarPV,windturbinesandEVs,wecollatedanewdatasetofendproducts,subcomponents,processedandrawmaterialsclassifiedunderthe6-digitHS.The6-digitHSisa

standardizedclassificationoftradedproductsusedbycustomsauthoritiesaroundtheworld.Itisalsothemost

granularclassificationthatiscomparableacrossalmostallcountriesandovertime(seeMethodssectionA1for

moredetail).Figure1showsanillustrationofthesolarPVvaluechain,withexampleproductslisted.Duetothe

challengesofclassifyingsuchproductsunderthe6-digitHS(IISD,2020),ourdatasetisnotexhaustivebutintendedtofocusonthekeyidentifiableelementsofeachvaluechain.2

AsEVproductionincludesproductsthatarealsousedininternalcombustionengine(ICE)vehicles,weconstruct

twosetsofvaluechainproducts:onemorebroadlydefinedandonemorenarrowlydefined.Thebroaderset

includesHSproductsassociatedwiththewidervehiclemanufacturingvaluechain,e.g.,productsusedineitherICEvehiclesorEVs.ThenarrowerEVvaluechainonlyconsidersproductsthatrelatespecificallytoEVs,e.g.,battery

endproductsandcomponentsandtheassembledEVendproduct.

Figure1:Mappingthesolarglobalvaluechain

2Allproductsincludedinourdatasetweresubjecttoaseriesofindependentevaluationsbyselectedindustryspecialists(seeMethodssectionA1forfurtherinformationandTableSI10foralistoftheincludedproducts).

4

Akeyconcernraisedbypolicymakersandinternationalorganizationsisthatproductionofthesetechnologiesishighlygeographicallyconcentrated.InFigure2,weconsiderhowconcentratedeachtechnologyvaluechainisin

termsofthemarketsharesoftheircomprisingproducts.Foreachproduct,wecalculatetheHerfindahl-Hirschman

Index(HHI)basedonthemarketsharesofallcountriesexportingtheproduct(seeMethodssectionA2for

descriptionofdatasourcesandA3fordefinitionofmetrics).AnHHIof1indicatesthatthemarketisaperfect

monopoly(onecountryexports100%oftheproduct),whileHHIscoresapproaching0indicateacompetitive

market.Figure2showsthedistributionofHHIvaluesforallproductsineachtechnologyvaluechain.TheaverageHHIvalueforalltradedproducts(0.174)isshownasthedottedline.Eachvaluechainhasadistinctrightskew

wherealargeproportionofproductshavelowerthanaverageHHIscores(indicatinglessconcentratedmarkets),butalongtailofproductsshowinghighermarketconcentrationlevels.Overall,thismeansthattheconcentrationineachtechnologyvaluechainisnotalarming,yetafewproductsrepresentvulnerabilitiesduetohighexport

marketconcentration.

Figure2:Marketconcentrationofexportedproductsineachvaluechain,2021

Figure3providesmoredetailonthemarketconcentrationofproductsineachvaluechain.Eachnoderepresentsa

productineachvaluechain,coloredbyitsvaluechainsegmentandsizedbasedonitsglobalexportvalue.Thex-axisshowsaproduct’smarketconcentration,asmeasuredbytheHHI,andthey-axisshowsthenumberof

countriesthatarecurrentlyexportingmoreofthatproductthantheyareimporting.Thelattergivesanindicationofthebreadthofexportercountries.Productsthatfacehighersupply-sideriskarethoseinthebottomright

corner,wherethenumberofexportingcountriesislowandmarketshareacrossthosecountriesisconcentrated.InthesolarPVvaluechain,thesetendtorelatetomoredownstreamsubcomponentssuchasglassproducts,

insulatedelectricconductorsandopticaldevices.Forwindturbines,thesearemorerelatedtoprocessed

materials,notablylargersubcomponentsandendproductssuchasbladesortowerswhichtendtobetradedlessintensivelyduetotheirsizeandweight.ForEVs,upstreamrawandprocessedmaterialscouldposethehighest

5

supply-siderisks.However,itisimportanttonotethatthisanalysisdoesnotconsiderthesubstitutabilityoftheseproducts.Whilesupplydisruptionsintheseconcentratedproductscouldcreateshort-termproductiondelaysorcostincreases,suchdisruptionscouldbeovercomeifproducersareabletoswitchtoalternativesinatimelyandcost-efficientmanner.

Figure3:Exportmarketconcentrationandnumberofexportersacrossvaluechainproducts,2021

2.2Dominantplayersindecarbonizationtechnologies

Havinglookedatmarketconcentrationacrosskeyproductsinthesedecarbonizationtechnologyvaluechains,wenowturntothequestionofwhichcountriesarecurrentlythemostdominantplayersineachvaluechainandlikelytohavethegreatestexportstrengths.Wefirstconsiderthetop10countriesthathavethehighestmarketshare

acrossproductsineachdecarbonizationtechnologyvaluechainsegmentinFigure4.Chinaishighlydominant

acrossalltechnologyvaluechains;itisatop10countryinallvaluechainsegmentsandthenumberonecountry

acrossallsubcomponentsegments.Chinaisalsothenumberonecountryacrossallsegmentsinthewindturbinevaluechain,andthreeoutoffoursegmentsinsolarPV.However,othercountriessuchasGermany,theUS,Japan,AustraliaandtheRepublicofKoreaalsofeatureprominentlyinthetop10countriesbymarketshare.

Figure4:Top10countriesbyexportmarketshareineachvaluechainsegment,2021

Note:ARG-Argentina,BRA-Brazil,CAN-Canada,COD-DemocraticRepublicofCongo,CHL-Chile,CHN-China,DNK-Denmark,DEU-

Germany,ESP–Spain,FRA-France,HUN-Hungary,IND-India,IDN-Indonesia,ITA-Italy,JPN-Japan,MEX–Mexico,NLD-Netherlands,NOR-Norway,PER-Peru,POL-Poland,ROU-Romania,RUS–RussianFederation,ZAF-SouthAfrica,KOR–RepublicofKorea,ESP-Spain,SWE-

Sweden,TUR-Türkiye,UKR-Ukraine,ZMB-Zambia.

6

Whilemarketshareprovidesinsightsintothedepthofacountry’sexportstrengthsinaproduct,itisnot

particularlyinformativeaboutthebreadthofacountry’sproductioncapabilitiesacrossproductsinthevaluechain.Figure5representsbothdepthandbreadthdimensions,showingacountry’saveragemarketshareacrossallvaluechainproductsonthex-axis(‘depth’)andthenumberofproductsacountrydemonstratesexportcompetitiveness

inalongthey-axis(‘breadth’).Tomeasurewhetheracountrydemonstratesexportcompetitiveness,wefollowawidelyusedconventioninthetradeandcompetitivenessliteratureanddrawontheRevealedComparative

Advantage(RCA)measuredefinedinequation1:

RCAcp=(1)

whereXcprelatestotheexportsofcountrycofproductp,Xcrelatestothetotalexportsincountryc,XprelatestothetotalglobalexportsofproductpandXrelatestototalglobalexports.Here,wecountthenumberof

productsforwhichacountry’sexportshareisgreaterthanorequaltotheglobalaverage(RCA≥1).

Chinaiswellaheadofothercountriesintermsofitsdepthofmarketshareacrossvaluechainproductsinall

decarbonizationtechnologiesandisoneoftheleadersintermsofthebreadthofitscompetitiveness.Other

leadersintermsofbreadthofcompetitivenessareGermanyandJapan,whichhaveanexportsharesgreaterthantheglobalaverageinalmost50productsinthesolarPVvaluechain,whiletheUS,KoreaandItalyarenotfar

behind.India,RomaniaandTürkiyearemiddle-incomecountriesthatshowastrongbreadthofcompetitiveness

acrossawiderangeofwindturbinevaluechainproducts,whileSouthAfrica,JapanandBelgiumfeatureprominentlyintheirbreadthofcompetitivenessintheEV(narrowlydefined)valuechain.

Figure5:Countries’breadthanddepthofexportcompetitivenessineachvaluechain,2021

Tosummarizethesedepthandbreadthdimensionsintoasinglenumberthatwecancompareacrosscountries,andovertime,wedevelopthe`DecarbonizationTechnologyStrength’(DTS)index.First,wemakethedifferent

scalesanddistributionsofdepthandbreadthdimensionscomparablebynormalizingtheirvaluestohavezero

meanandunitstandarddeviation.Wethenassignequalimportancetoz-scoresofdepthandbreadthdimensionstodefinecountriesintheDTSindex,makingittheleastagnosticdataminingprocedurefeasible(seeMethods

sectionA3.2formoredetail).Thismeansthattofarewelloverall,acountrymustscorehighlyonbothdepthandbreadthdimensions.WeapplythisapproachtocalculateDTSindicesforeachspecificvaluechain,andallvaluechainproductscombined.Table1showsthetop15countriesforeachconstructedDTSindex.

China,GermanyandtheUSaretheleadersinexportcompetitivenessacrossallthreetechnologiesglobally.Japan,KoreaandWesternEuropeancountriesfollowsuit.Moreover,middle-incomecountrieslikeTürkiye,Mexico,India,SouthAfrica,andBrazilshowexportstrengthsinavarietyofkeyvaluechainproducts.Theyarestrategically

7

positionedtobenefitfromanticipatedgrowthintheseareasandhaveadvancedmanufacturingsectors.The

DemocraticRepublicoftheCongoistheonlylow-incomecountryintheDTStop15index,givenitsstrengthsinrawmaterialsoftheEVvaluechain.

Table1:DTSIndex:Top15countriesforeachvaluechainandallvaluechainsoverall,byincomegroupin2021

DTSIndex

Allvaluechainproducts

SolarPV

WindTurbines

ElectricVehicles

1

China

China

China

China

2

Germany

Germany

Germany

UnitedStates

3

UnitedStates

Japan

UnitedStates

Germany

4

Japan

UnitedStates

Italy

Japan

5

Italy

Korea,Rep.

Japan

SouthAfrica

6

Korea,Rep.

Italy

India

Australia

7

France

Austria

Korea,Rep.

Congo,Dem.Rep.

8

India

France

France

France

9

Austria

Spain

Türkiye

Brazil

10

Spain

HongKongSAR,China

Romania

Belgium

11

Türkiye

UnitedKingdom

Spain

Finland

12

UnitedKingdom

Mexico

Austria

Korea,Rep.

13

Czechia

Czechia

Czechia

Spain

14

Sweden

Denmark

Sweden

Canada

15

Romania

Belgium

UnitedKingdom

Netherlands

2.3Diversificationanddevelopmentopportunitiesindecarbonizationtechnologies

Havingconsideredcountries’currentexportstrengthsinthevaluechainsofkeydecarbonizationtechnologies,we

nowlooktoidentifycountriesthatarelikelytobebestplacedtohelpfurtherdiversifythesevaluechains.Inadditiontoincreasingmarketparticipationandbuildingglobalsupplychainresilience,countriesthatcan

successfullydevelopnewareasofcompetitivenessinthesehigh-growthvaluechainscouldseeimportanteconomicgrowthanddevelopmentbenefits.3

Similartoourapproachforidentifyingcountries’exportstrengths,wealsoconsidertwodimensionsrelatingtothebreadthanddepthofacountry’sfuturediversificationopportunityineachvaluechain.Wealsosummarizethe

depthandbreadthofopportunitydimensionsintoasingleDecarbonizationTechnologyOpportunity(DTO)indexthatcanbecomparedacrosscountriesandovertime.AsfortheDTSindex,weconvertbothdepthandbreadthopportunitydimensionsintoz-scorestoaccountfortheirdifferentialscalesanddistributions.Wethentakethesimpleaverageofthesez-scorestodefinetheDTOindex.

Thebreadthdimensionconsidersthenumberofproductsineachvaluechainforwhichacountry’sRCA(definedinequation1)fallsbetween0.1and1.Thismetricaimstoidentifyhowmanyproductsacountryshowssomeexistingexportcapabilities,butatalevelthatisstillnotgreaterthantheglobalaverage.TheRCAthresholdof0.1

correspondstocountry’smedianexportintensity,includingproductsthataresignificantlyestablished(inrelative

3Weacknowledgethattheexplorationofexportdiversificationopportunitiesfornaturalresourceproductsdiffersfromthatofknowledge-basedproducts.Whilerawmaterialavailabilitydeterminestheformer,thelatterhingesonacountry’sproductivecapabilities,suchasaskilledlaborforce,amongotherfactors.Ourgeographic-based

relatednessmeasureisagnosticabouttheeconomicforcesdrivinghowcountriesdiversifytheirexportbasketsintonewproducts.

8

terms).IntheMethodsappendixA3.3,wepresentresultsfordifferentRCAthresholds,butresultsdonotdifferqualitatively.Werefertothesesetofproductsas‘opportunityproducts’foragivencountryineachvaluechain.

Thedepthdimensionaimstocapturehowalignedorrelatedtheseopportunityproductsaretoacountry’sexistingexportcapabilities.Countriesthathaveexistingexportstrengthsthatinvolverelatedproductioncapabilitiestonewproductshavebeenshowntobesignificantlymorelikelytodevelopexportstrengthsinthoseproductsinfutureperiods(Hidalgoetal.,2007).Drawingonmethodsdevelopedintheeconomicgeographyliterature,wedefinecapabilityalignmentastheextenttowhichacountry’sbasketofexistingexportstrengthsarerelatedtoeachdecarbonizationopportunity.FollowingHausmannetal.(2014),wefollowthreestepstodefinecapabilityalignment.4First,wedefineacountry’sproductivecapabilitiesembodiedinitsexportstructure.Tothatend,werelyonRCAasourindicatorofrelativeexportintensity(Balassa,1965).WebinarizeRCAcptodefineMcp,ourmatrixofexportcompetitivenessofcountrycinproductp,whichtakesvalue1ifRCAcpforcountrycinproductpexceeds1,and0otherwise.

Second,weconstructameasureoftechnologicalrelatednessbetweenproducts.Wedefineproductrelatednessφp,p,theconditionalprobabilityofco-exportingtwogivenproductswithjointcomparativeadvantage.Thismeasure,whichisalwaysdistributedbetween0and1,positsthattwoproductsaremorerelatedtoeachotherthehighertheprobabilitythatcountriesco-exportthemwithjointcomparativeadvantage.Specifically,productrelatednessφp,p′betweenproductspandp’foraparticularyearisdefinedas:

∑cMcpMcp′

∑cMcp

φp,p′=

(2)

Third,todefinetheproximityofaproductasitrelatestootherexistingproducts,westillneedameasurethatcanbeexpressedatthecountry,productandyearlevel.Tothatend,weconstructcapabilityalignmentaroundeachproductwhichcapturestheintensitywithwhichtheprodu