The granular and fundamental components of export specialization
Countries' export specialization patterns are often caused by the behavior of very few firms. We propose an easy-to-implement methodology to decompose export specialization into fundamental comparative advantage (a country-specific component) and granular comparative advantage (a firm-specific component). We apply this methodology to analyze export specialization across countries and across regions within a country. In the country-level analysis, we find that, on average, granular comparative advantage leads to export specialization in 29% of industries, which account for 47% of total exports. We also show that 60% of the variation in export specialization across countries is explained by granular comparative advantage. The contribution of firms to export specialization is more important across regions within a country than across countries.
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