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What does export diversification do for growth? An econometric analysis

  • Dierk Herzer
  • Nowak-Lehnmann Felicitas

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 with foreign purchasers and exposure to international competition. Vertical diversification out of primary into manufactured exports is also associated with growth since primary export sectors generally do not exhibit strong spillovers. 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 structural changes in the Chilean economy, 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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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 15 ()
Pages: 1825-1838

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Handle: RePEc:taf:applec:v:38:y:2006:i:15:p:1825-1838
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  1. Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
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  5. Chuang, Yih-Chyi, 1998. "Learning by Doing, the Technology Gap, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 697-721, August.
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