A Roadmap to Diversifying Pakistan’s Exports: Operationalizing the Product Space

Pakistan has not been able to significantly increase exports or diversify its export base towards higher value-added products which has both contributed to its perpetual balance of payments problems and impeded growth. To address this, it is crucial to identify potential new exports that are not only relatively closer to the current export basket but also those products that have the potential to lead to higher value-added exports. This paper explores new categories of merchandise exports by incorporating the methodology developed by Hausmann and Klinger (2007), Hausmann et al. (2007), and Hidalgo et al. (2007). It operationalizes the concept of product space and identifies new products for Pakistan which are closer to prevailing production capabilities as well as new products that are of higher sophistication. Using the same methodology, this paper also analyzes the change in export basket of Pakistan from 2017 to 2021 and evaluates whether and to what extent the new categories recommended in 2017 have become part of 2021 export basket.