Export diversification and economic development: A dynamic spatial data analysis

This paper contributes to the empirical literature on the relationship between “export variety” (export diversification) and economic development by relaxing the assumption of cross‐country independence and allowing for spatial diffusion of shocks in observed and unobserved factors. Export variety is measured for a balanced panel of 114 countries (1992–2012) using very detailed information on their exports (HS 6‐digit product level). The estimation results of a dynamic spatial panel data model confirm the relevance of spatial network effects in export diversification: indirect effects (spatial spillovers) strongly reinforce direct effects, while spatial proximity to large countries accelerates the diversification process. In about 10 years the whole space–time diffusion of the diversification shock is widely completed. We reveal that the long‐run spillover impact from European countries is much higher than from other countries such as the United States, Japan, or the BRICS (Brazil, Russia, India, China, and South Africa).