Abstract
The global resurgence of industrial policy has revived the appeal of downstream diversification (beneficiation) – adding value to raw materials – as a development strategy. Despite this intuitive appeal, empirical evidence of its effectiveness remains scarce, with few real-world success stories. We address this gap through a novel em- pirical analysis of export product co-location and new relatedness metrics to explain observed diversification patterns. Our results show that product co-location patterns are driven primarily by similarities in occupational structures. Industries sharing high-skill occupations (and to a lesser extent, non-tradable inputs) are strong predic- tors of diversification. Conversely, relatedness metrics based on value-chain linkages (existing upstream inputs) have weak to no predictive power. These findings suggest rethinking development strategies focused on adding v