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Export Diversification, Externalities and Growth




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 to foreign purchasers and exposure to international competition. Vertical diversification out of primary into manufactured exports is also associated with growth since primary export sectors prevalently do not exhibit strong spillovers. Thus, it is to be expected that both horizontal and vertical export diversification are positively correlated with economic growth. 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 Chile\'s dramatic changes in economic policy, time series techniques considering structural breaks are applied. The estimation results suggest that export diversification plays an important role in economic growth.

Suggested Citation

  • Dierk Herzer & Felicitas Nowak-Lehmann D., 2004. "Export Diversification, Externalities and Growth," Ibero America Institute for Econ. Research (IAI) Discussion Papers 099, Ibero-America Institute for Economic Research.
  • Handle: RePEc:got:iaidps:099

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    References listed on IDEAS

    1. JØrgen Wolters & Helmut LØtkepohl, 1998. "A money demand system for German M3," Empirical Economics, Springer, vol. 23(3), pages 371-386.
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    3. Fahim Al-Marhubi, 2000. "Export diversification and growth: an empirical investigation," Applied Economics Letters, Taylor & Francis Journals, vol. 7(9), pages 559-562.
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    7. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
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    9. Ffrench-Davis, Ricardo, 2002. "El impacto de las exportaciones sobre el crecimiento en Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
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    Cited by:

    1. Alberto Amurgo-Pacheco, Martha Denisse Pierola, 2007. "Patterns of export diversification in developing countries: intensive and extensive margins," IHEID Working Papers 20-2007, Economics Section, The Graduate Institute of International Studies, revised Jul 2007.

    More about this item


    Export diversification; growth; Chile; cointegration;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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