Export product diversification, poverty and tax revenue in developing countries

Abstract

The current paper has examined the effect of both export product diversification and poverty on non-resource tax revenue in developing countries. The analysis has used an unbalanced panel dataset of 111 countries over the period 1980–2014. Based on the Blundell and Bond two-step system Generalized Methods of Moments technique, the empirical analysis has shown interesting findings. Export product concentration and poverty influence negatively non-resource tax revenue over the full sample, but this effect varies across countries in the sample. Furthermore, the effect of export product diversification on non-resource tax revenue performance depends on the level of poverty. It appears that export product diversification influences positively non-resource tax revenue performance in countries that experience lower poverty rates. From a policy perspective, these findings show that policies in favour of diversifying export product baskets and reducing poverty would contribute to enhancing non-resource tax revenue performance in developing countries.

KEYWORDS:

• Export product diversification
• poverty
• non-resource tax revenue

JEL Classifications:

• F10
• I32
• H20

Acknowledgments

This article represents the personal opinions of individual staff members and is not meant to represent the position or opinions of the WTO or its Members. Any errors or omissions are the faults of the Author. The author expressed his full gratitude to the two Reviewers and the Joint Editor for their constructive comments on the earlier version of the paper. Any errors or omissions are the faults of the author.

Disclosure statement

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

Notes

1 A recent literature review on the matter has been provided by Prichard (2016). Recent studies include for example, Abdelwahed (2020); Baunsgaard and Keen (2010); Bird, Martinez-Vazquez, and Torgler (2008); Brun, Chambas, and Mansour (2015); Cagé and Gadenne (2018); Crivelli (2016); Crivelli and Gupta (2014, 2018); Gnangnon (2018, 2019); Gnangnon and Brun (2017, 2018, 2019); Langer and Korzhenevych (2019); Morrissey et al. (2016); and Oz-Yalaman (2019).

2 See, for example, Aditya and Acharyya (2013); Can and Gözgör (2017); Hausmann, Hwang, and Rodrik (2007); Herzer and Nowak-Lehmann (2006); Mania and Rieber (2019); Naudé, Bosker, and Matthee (2010); and Redding (1999).

3 See, for example, di Giovanni, Levchenko, and Méjean (2014); Haddad et al. (2013); Malik and Temple (2009); and Camanho da Costa Neto and Romeu (2011).

4 The 17 SDGs were adopted by the General Assembly of the United Nations, and contained in the document ‘Transforming our world: the 2030 Agenda for Sustainable Development’, whose reference number is A/RES/70/1. The SDGs replaced the Millennium Development Goals (MDGs) (adopted in September 2000 by United Nations Members), the first of these goals being to halve extreme poverty by the target date of 2015.

5 It is worth noting that the MDGs were adopted at the Millennium Summit of the United Nations held at the United Nations headquarters in New York, on 8 September 2000. The first MDG aimed at to halving extreme poverty by the target date of 2015.

6 Tax revenue performance is measured by the tax revenue share in gross domestic product.

7 See for example, di Giovanni, Levchenko, and Méjean (2014); Haddad et al. (2013); Lee and Zhang (2019); Malik and Temple (2009); and Camanho da Costa Neto and Romeu (2011).

8 See, for example, Acemoglu et al. (2003); Alimi (2016); Antonakakis and Badinger (2016); Badinger (2010); Berument, Dincer, and Mustafaoglu (2012); Campi and Dueñas (2020); Fata (2002); Hnatkovska and Loayza (2005); and Ramey and Ramey (1995).

9 Studies include, for example, Agbeyegbe, Stotsky, and WoldeMariam (2006); Bahl (2003); Baunsgaard and Keen (2010); Bird, Martinez-Vazquez, and Torgler (2008); Brun, Chambas, and Mansour (2015); Cagé and Gadenne (2018); Crivelli (2016); Crivelli and Gupta (2014, 2018); Ebrill, Stotsky, and Gropp (1999); Ghura (1998); Gnangnon (2018, 2019a); Gnangnon and Brun (2017, 2018, 2019); Khattry and Rao (2002); Langer and Korzhenevych (2019); Morrissey et al. (2016).

10 This positive productivity effect of trade openness can take place through increased competition in domestic markets, knowledge diffusion, market size expansion and the resulting opportunities for economies of scale.

11 The group of Least developed countries is designated by the United Nations, and refers to poorest and most vulnerable countries to external and environmental shocks in the world. Further information on this group could be obtained online at: http://unohrlls.org/about-ldcs/

12 This value of economic growth rate is extracted from the software Stata that we used to depict Figure 7.