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Export Diversification, Externalities and Growth

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Author Info

  • Dierk Herzer

    ()

  • Felicitas Nowak-Lehmann D.

    ()
    (Ibero-Amerika Institut)

Abstract

It is frequently suggested that export diversification contributes to an acceleration of growth in developing countries. Horizontal export diversification into completely new export sectors may generate positive externalities on the rest of the economy as export oriented sectors gain from dynamic learning activities due to contacts to foreign purchasers and exposure to international competition. Vertical diversification out of primary into manufactured exports is also associated with growth since primary export sectors prevalently do not exhibit strong spillovers. Thus, it is to be expected that both horizontal and vertical export diversification are positively correlated with economic growth. Yet there have been remarkably few empirical investigations into the link between export diversification and growth. This paper attempts to examine the hypothesis that export diversification is linked to economic growth via externalities of learning-by-doing and learning-by-exporting fostered by competition in world markets. The diversification-led growth hypothesis is tested by estimating an augmented Cobb-Douglas production function on the basis of annual time series data from Chile. Based on the theory of cointegration three types of statistical methodologies are used: the Johansen trace-test, a multivariate error-correction model and the dynamic OLS procedure. Given Chile\'s dramatic changes in economic policy, time series techniques considering structural breaks are applied. The estimation results suggest that export diversification plays an important role in economic growth.

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Bibliographic Info

Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 099.

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Length: 23 pages
Date of creation: 01 Sep 2004
Date of revision:
Handle: RePEc:got:iaidps:099

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Keywords: Export diversification; growth; Chile; cointegration;

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  1. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  2. Fahim Al-Marhubi, 2000. "Export diversification and growth: an empirical investigation," Applied Economics Letters, Taylor & Francis Journals, vol. 7(9), pages 559-562.
  3. Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August.
  4. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
  5. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  6. Denise Stanley & Sirima Bunnag, 2001. "A new look at the benefits of diversification: lessons from Central America," Applied Economics, Taylor & Francis Journals, vol. 33(11), pages 1369-1383.
  7. Neil R. Ericsson & James G. MacKinnon, 2000. "Distributions of Error Correction Tests for Cointegration," Econometric Society World Congress 2000 Contributed Papers 0561, Econometric Society.
  8. Ronald Fischer, 2001. "Trade Liberalization, Development and Government Policy in Chile," Documentos de Trabajo 102, Centro de Economía Aplicada, Universidad de Chile.
  9. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  10. JØrgen Wolters & Helmut LØtkepohl, 1998. "A money demand system for German M3," Empirical Economics, Springer, vol. 23(3), pages 371-386.
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Cited by:
  1. Amurgo-Pacheco, Alberto & Pierola, Martha Denisse, 2008. "Patterns of export diversification in developing countries : intensive and extensive margins," Policy Research Working Paper Series 4473, The World Bank.
  2. Mauricio Mesquita Moreira, 2006. "Trade and Integration Sector Note: Chile," IDB Publications 31178, Inter-American Development Bank.

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