Finding your niche.

When developing countries turn to economists for advice on trade, they are usually pointed towards David Ricardo. According to his law of comparative advantage, countries should specialise in whatever they are best at producing, leaving their trading partners to provide everything else. As Ricardo Hausmann and Dani Rodrik, two economists at Harvard University, put it in a recent paper, economic development is a haphazard process of 'self-discovery.' Bangladesh, for example, is good at exporting hats, having sold $175m-worth to America in 2000. And why did Pakistan, a country with a similar mix of land, labour and capital, export $130m-worth of bed-sheets to America in 2000 but a mere $700,000-worth of hats? Mr. Hausmann and Mr. Rodrik cite many examples of countries that have happened upon a lucrative export niche -- cut flowers from Colombia, software from India, footballs from Pakistan -- to which raw factor endowments give only the roughest of guides.