Welcome to the presentation of the Product Diversification Indicator,
which is the second indicator of ITC's export potential assessment methodology.
In this sequence, I will introduce the PDI to speak about its main data sources
and introduce it into the general framework of export potential assessments.
The final indicator of the PDI will not be a US dollar value as we have seen for the EPI,
but it will be a rank,
a rank of a new product for export diversification in a given target market.
The reason for that is that in EPI,
we were able to capture supply capacities based on historical trade information.
With the PDI, we do not have this possibility.
You want to indicate to countries that are sometimes resource-focused
or that have a rather narrower export basket because they are
just at a very low stage of economic development.
We also want to suggest new products for export diversification.
So we want to look a little bit into the future.
That means we cannot rely on historical trade information to measure supply capacity.
We use a different approach.
We use the so-called product space methodology,
invented by Hausmann and Hidalgo,
to give an idea of
what new products countries could possibly diversify into in the future.
And since this is much more uncertain than what we do with the EPI,
we cannot express the final result in US dollar terms,
but we simply give a rank of the product in a given target market.
Demand and market access conditions follow exactly the same approach as in the EPI.
That means we also use exactly the same data sources to measure
these two variables as we used in the Export Potential Indicator.
What differs is how we measure supply conditions.
In the PDI, we rely on the so-called product space methodology that establishes
links between products exported by all countries in the world.
Again, the product space methodology relies on trade information.
And this trade information is again taken from ITC's trade map.
But we do something on top of that.
The products that the product space methodology identified as
feasible are filtered against
the availability of natural resources in the countries under analysis.
There are two filters we apply.
The first one is,
we identify which are
the relevant climatic zones in Western regimes to produce and export certain goods.
And if the country under analysis does not
process these climatic zones on Western regimes,
we would remove the products from the list of feasible diversification opportunities.
The second filter we apply is landlocked status.
If a country is landlocked and is suggested to diversify into sea-related products,
we would again remove them if we observe that no other country that
is also landlocked has ever managed to export these products successfully.
So, for these two filters,
we obviously need different data sources,
we need information on the landlocked status,
and we need information on the climatic zones.
And we take this information from the Global Agricultural Land Use database from GTAP.
Coming to the economic framework,
as I already mentioned,
the demand and the market access conditions
are just as in the Export Potential Indicator.
To really apply the same economic framework as an EPI,
we need however a different measure of supply capacity.
We cannot rely on historical trade information that was used to compute
the comparative advantages which were the supply side measure of the EPI.
So what we do is we take the product space methodology,
and based on that,
we compute all linkages between the products that the country already exports with
comparative advantage to new products that it might be able to diversify into.
And we take these linkages,
this measure of linkages as a new supply measure,
as a new measure to indicate supply capacities of the country and analysis.
And then, we combine the supply side measure again with demand and
market access conditions as in the Export Potential Indicator.