24 October 2011

Exploring the Portaloo Product Jungle

The Great BBC series African Dream profiles entrepreneur Moses Nderitu, who went from being a TV producer to setting up Kenya's first portable toilet rental business almost by accident. He needed to buy a portaloo, but couldn't just ship 1 to Kenya, so had to ship 4. And then slowly started persuading people to rent them from him. And now employs 20 staff in his booming loo rental business.

Which is a lovely illustration of Hidalgo and Hausman's product space theory of economic development. The economy is a bit evolutionary, with lots of random leaps, but some products (and services) are closer together, and so it only takes a small leap (like Nderitu's). Some are much further apart. So the things that an economy can produce tomorrow depend a lot on what you can produce today (learning by doing and path dependence are not new ideas in development economics, but this is a sophisticated new data-driven way of looking at it).

Or as Rodrik puts it
think of the product space as a forest, goods as trees, and entrepreneurs as monkeys. Countries develop as monkeys jump from tree to tree. Trees further away are harder to jump to. Some parts of the forest are denser than others. What trees you have monkeys on today determines where your monkeys will be tomorrow. And it goes from there.

No comments:

Post a Comment