Structural Transformation and Quality Ladders: Solving the 'Theil's Cube'

Abstract

We propose a decomposition of weighted Theil index of export concentration into the quantity-and quality-driven terms and calculate the proposed components for 5038 product groups and 120 countries. We link our findings to the debate on the role of quality upgrading in structural transformation. The results do not support the idea that climbing quality ladders (or quality upgrading within the actually exported products) is the best way to proceed with structural transformation: for most countries, the share of the quality-driven component of weighted Theil index doesn't exceed 20 per cent.JEL Classification: F10, F14, L16, C43. . We acknowledge helpful comments from the anonymous reviewer that stimulated to outline the methodology more precisely. prices, due to the "standardized" nature of the product. A good example is unwrought nickel (see Fig. A2). For this product, Russia is unable to increase exports much even after climbing at the very top of the quality ladder. Rather, the country should move to nearby products that are more complex (nickel tubes, pipes, etc.). Fig. A2. Weighted and unweighted quality laddersfor unwrought nickel (HS 750210)