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What Diversification of Trade Matters for Economic Growth of Developing Countries?

Author

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  • Fabien Rondeau

    (CREM UMR CNRS 6211, University of Rennes 1, France)

  • Nolwen Roudaut

    (IREA, University of South Britanny, France)

Abstract

This paper underlines the influence of trade diversification on GDP per capita growth. Using methodologies developed by Brenton and Newfarmer (2007) and Amurgo-Pacheco and Pierola (2008), we breakdown exports of 64 developing countries into intensive margin (old traded flows), extensive margin by new partners (geographic diversification) and extensive margin by new products (product diversification). Estimations of the augmented Solow model by system-GMM for the period 1990-2009, first confirm that trade diversification has a positive effect on growth. However, this positive effect of diversification tends to decrease with the level of GDP per capita. Finally, the effect of product diversification is twice as large as the effect of geographic diversification: to implement economic growth, developing countries should extend exports of new products rather than exports to new partners.

Suggested Citation

  • Fabien Rondeau & Nolwen Roudaut, 2014. "What Diversification of Trade Matters for Economic Growth of Developing Countries?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201407, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:201407
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    Cited by:

    1. Hongbo Liu & Hanho Kim & Justin Choe, 2019. "Export diversification, CO2 emissions and EKC: panel data analysis of 125 countries," Asia-Pacific Journal of Regional Science, Springer, vol. 3(2), pages 361-393, June.
    2. Hinlo, Jennifer E. & Arranguez, Grace Ivy S., 2017. "Export Geographical Diversification and Economic Growth Among ASEAN Countries," MPRA Paper 81333, University Library of Munich, Germany.
    3. Mihalache-O'Keef, Andreea S., 2018. "Whose greed, whose grievance, and whose opportunity? Effects of foreign direct investments (FDI) on internal conflict," World Development, Elsevier, vol. 106(C), pages 187-206.

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    More about this item

    Keywords

    Trade; Diversification; Growth; Extensive Margin;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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