Margins, Gravity, and Causality: Export Diversification and Income Levels Reconsidered

Abstract

The paper shows that the relationship between GDP per capita and levels of specialization can be predicted differently depending on whether the intensive or the extensive margin is considered. It shows that at the extensive margin countries continuously diversify their exports and that cross-sectional patterns can be captured well by a gravity equation. Prior studies documenting nonmonotone patterns with respecialization appear to have obtained their results from sample-selection bias, the omitted log-transformation of the income variable, and the neglect of control variables. Furthermore, results from dynamic panel analyses (system GMM) suggest that causality goes in both directions, with income having a contemporaneous impact on diversification, while the feedback effect of diversification on GDP per capita may be delayed. This pattern fits into theoretical rationales that view diversification as driven by technology or efficiency and where diversification generates additional revenues as it proves to be persistent.

Determinants of High-tech Export in CEE and CIS Countries

“…The country's foreign economic indicators are a significant export factor. The openness of the economy has a positive effect on the volume of exports (see, for example, the works of Parteka & Tamberi [14] and Mau [15]). Based on data on 175 countries from 1980 to 2007, Iwamoto & Nabeshima [16] showed that foreign direct investment (FDI) leads to export diversification.…”