Relative Productivity, Country Size and Export Diversification

This paper analyses the effects of productivity and country size on the extent of trade structure diver-sification. 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. (c) 2021 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license ( http://creativecommons.org/licenses/by-nc-nd/4.0/ )

Automated summary

This study demonstrates a positive relationship between a country's relative productivity and export variety, as well as a negative relationship between export variety and the expansion of foreign economies. Technology differences play a driving role in export diversification, especially in the early stages of development.