Export sophistication and economic performance, new evidence using TiVA database

ABSTRACT

This study investigates the relationship between export sophistication and economic performance using a panel data from 64 countries over 2005–2015. Following a dynamic GMM approach, strong evidence of the positive effect of the manufacturing sector on countries’ economic performance is found. Similarly, high tech and ICT exported goods have a positive and significant effect on income. Relying on TiVA indicators gives new insights into countries’ Global Value Chains (GVCs) participation gains. Backward linkages are shown to be strongly income enhancing. Forward linkage effects are mixed, depending on the end use of the exported domestic value-added, suggesting that countries should not take GVCs’ benefits for granted and should consider interventionist policies in order to climb the sophistication ladder and develop more valuable parts of the value chain.

KEYWORDS:

• Export sophistication
• economic performance
• TiVA
• backward linkages
• forward linkages
• dynamic panel GMM

JEL CLASSIFICATION:

• F1
• O4
• C33

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Where it is hypothesized that developing countries could take advantage of their backwardness in terms of technology and gain significantly on frontier countries and experience rapid productivity and income catch-up (Gerschenkron 1962).

2. ‘Some high-growth countries such as China and India have EXPY levels that are much higher than what would be predicted based on their income levels’ (Hausmann, Hwang, and Rodrik 2007, page 3).

3. Many studies have attempted to break up countries’ gross exports into various value-added components previous research, such as Daudin, Rifflart, and Schweisguth (2011), Timmer (2012), Johnson and Noguera (2012), Stehrer, Foster, and de Vries (2012) and Koopman, Wang, and Wei (2014).

4. Similar measure has been developed by Lall, Weiss, and Zhang (2006). Their measure is a weighted average of the mean income of ten groups of countries and the weights are the share of the ten groups in the world exports of a product. Similarly, this measure relies on income of countries exporting a product to capture product sophistication.

5. Hausmann, Hwang, and Rodrik (2007) applied RCA index as a weight to ensure that country size does not distort goods ranking. It is worth noting that many attempts have been taken to correct Balassa’s RCA index biases (Yu, Cai, and Leung 2009; French 2017, amongst others).

6. Income ratio values hold when PPP-adjusted GDPpc are used instead of constant $ 2010 in the calculation of PRODYs and EXPYs.

7. The data that support the findings of this study are openly available in Abdmoulah (2021).

8. Bontadini (2019) used similar variable, normalized by population, as dependent variable.

9. Reported in Abdmoulah (2021).