Export diversification and growth in emerging economies

Abstract

This paper develops and tests a model of growth that emphasizesthe introduction of new exports as the main source of growth in countriesthat are well within the global technology frontier and depend for growthon adapting existing products to their economic environment. It seeks tocapture the stylized facts behind growth in countries as different as theRepublic of Korea, Taiwan Province of China, Mauritius, Finland, Chinaand Chile, all of which have relied on export diversification. The wideningof comparative advantage is thus seen as the main driver of economicgrowth. The export diversification hypothesis is tested using an empiricalgrowth model. Controlling for other variables that affect growth, exportdiversification -both alone and in interaction with growth in per capitaexport volumes- is found to be highly significant in explaining per capitaGDP growth over the 1980-2003 period.