Relative Productivity, Country Size and Export Diversification

https://doi.org/10.1016/j.strueco.2021.01.002Get rights and content
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Highlights

  • This paper studies structural change in export diversification patterns.

  • We use a Ricardian-based model of countries’ relative export variety (REV).

  • REV is an outcome of changes in relative productivity and relative country size.

  • Model predictions are confirmed in a sample of 132 countries (1988–2014).

  • Productivity differences drive diversification at the beginning of development.

Abstract

This paper analyses the effects of productivity and country size on the extent of trade structure diversification. Using a testable version of the Ricardian model, we show that relative export variety is an outcome of two forces: a relative productivity change (technological progress) and a relative country size change (labour force growth). The model predictions are validated empirically using product-level trade data for a sample of 132 countries (1988–2014), including 53 low-income countries. We find a robust positive relationship between export variety and the countries’ relative productivity, as well as a negative relationship between export variety and the expansion of foreign economies (i.e., the growth of the RoW). The effect of technology differences on export variety is driving diversification especially at the beginning of the development process. The results are robust to changes in the measurement of export variety (also in terms of economic complexity), in the set of control variables, or in the estimation methods.

Keywords

economic development
export diversification
export variety
relative productivity
relative country size
Ricardian model

JEL

F11
F14
F43
O40
O11

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This research has been conducted within a Fulbright Senior Award project - Aleksandra Parteka acknowledges the support of the Polish-U.S. Fulbright Commission and the hospitality of University of California, Berkeley. All remaining errors are the authors’.