where _xi_ represents the country‟s export of good _i_ and _xiw_ represents the world‟s export of good _i_ . The ratio of a product‟s export shares in the country and in the world is taken as a proxy for the comparative advantage that the country has in the production of that good: the higher the value, the more the country is believed to have an advantage. We use a categorical variable having 1 for products for which Lao PDR has an RCA, and 0 for those whose ratio is below 1 and thus Lao PDR does not demonstrate an RCA. The RCA‟s are calculated for the period 2005-2006 (the most recent for which these calculations were available) and show Lao PDR as having an RCA in 211 out of 918 exported products.

PRODY, as the income level of a product, is the weighted per capita income of the countries that export that specific product. The central idea is that _ceteris paribus,_ “an economy is better off producing goods that richer countries export”. Since a core determinant of income levels across countries is the relative productivity of workers, it makes sense that richer countries should, on average, export products with higher value addition. Hence the measure of PRODY provides us with a useful proxy, albeit one with a number of limitations, for the value that countries gain from producing and exporting different goods. Thus, for example, raw cotton has a PRODY, or income level, of 530 while the value for electronic microcircuits is 11,907. As national incomes and product portfolios change, so does PRODY: the values used here are the 2000-2004 averages.

As a measure of the export diversification potential of a product, PATH, or product distance, is a measurement of the revealed distance between any two products within the product space matrix. Calculating PATH gives an indication as to whether any given product is located in a particularly dense or sparsely populated part of the product space: if the path or product distance is short, factors of production, skills and technology can be more easily deployed from one product to another than if the product distance is long. The product distances for any pair of products are calculated using the minimum of two conditional probabilities: the probability that a country has an RCA in making product _a_ , given that it has an RCA with _b_ , and vice versa.

The product PATH is then calculated as a measure of the likelihood that countries exporting any given product are likely to export other products and thus can be seen as a notional value of the potential for future export diversification associated with any particular product. Thus, for example, we find that PATH for copper (105) is low compared to the path for footwear (149). This means that there are more opportunities to diversify into other products from footwear than from copper. Within the product space, footwear is surrounded by a much larger number of related products, while copper is located in a more sparsely populated area. As with PRODY, the values used in this paper are the 2000-2004 averages.

# **_3.2 Descriptive Statistics_**

We begin with a first look at some of the descriptive statistics emerging from our analysis of the customs data. The top section of Table 1 presents the total number of firms, products and _6_ _Exporting from a small landlocked economy_