Explaining Diversification in Exports Across Higher Manufacturing Content — What is the Role of Commodities?

This paper adds new empirical evidence to the recent literature about the ways countries develop strong productive capacities by analyzing the patterns of export diversification across different levels of manufacturing content. In addition to the measures commonly used to study diversification, such as the number of active export lines and measures of “discoveries in exports”, we propose two new filters based on the concept of revealed comparative advantage (RCA). We use trade data at the 4-digit level for 176 countries from 1992 until 2011, and we classify all the products into three manufacturing categories (unprocessed, semi processed and finished goods). Data confirms that growing countries continue to add new commodities to their exports basket until they reach around US$ 25,000 of GDP per capita. More interestingly, we found that for many countries expanding the spectrum of commodities exported with comparative advantage (RCA) actually contribute to boosting new productive capacities in manufacturing sectors. This finding is robust to different econometric models and different country groups.