Why do poor countries make simple products?

Abstract: The products produced in rich countries are very different from the products produced in poor countries. Why? Unreliable electricity is often cited as one of the main challenges facing industrial production in less developed economies. In this paper, I connect these two observations by linking interruptions in the production environment to the sophistication of the production output. Using a data set covering more than 500,000 observations of manufacturing plants in India between 2000 and 2016, I find evidence suggesting that the level of interruption, modeled here using electricity shortages, contained in a plant's input supply is strongly associated with whether or not more complex products have a positive relationship with plant revenues. This suggests a new pathway between the production environment at the local level and the aggregate complexity of the economy.