The structure and dynamics of the auto parts industry: Product space and complexity perspectives

Abstract

Economic structures are strong determinants of diversification, growth, innovation, inequality, and many other socio-economic outcomes; however, structural change's effect on specific industries remains unexplored. This study investigates Japan's automotive components industry, analyzing its productive structure (the auto parts product space) and structural change process. We develop exploratory and econometric analyses that unify the measures of product relatedness and complexity. The firm-level data analysis shows that specific structural properties in international and domestic economies also exist in the automobile industry. This fractal structure implies that common principles and regularities underlie the formation of productive structures, notwithstanding the economies’ size, maturity, and industrial scope differences. The exploratory and econometric analyses indicate that the events of a product's appearance are not random but are significantly contingent on the network topology of the product space. Furthermore, network topology significantly impacts the development of complex products with sophisticated capabilities.