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Structural Transformation of Exports in a Product Space Model

  • Kristine Vitola

    (Bank of Latvia)

  • Gundars Davidsons

    (Bank of Latvia)

The research paper deals with an export structural transformation model providing for a transition from the production and exports of goods with low value added to the production and exports of goods with high value added. It is essential for the improvement of a nation's welfare, as observations show that in a longer perspective the level of economic development is related to the degree of export sophistication. The speed of structural transformation depends on the distance in the product space between the potential export goods and the existing export goods with revealed comparative advantage. Estimations within the research suggest that the relative distance of Latvian export goods to goods with comparative advantage is rather small. Potential of almost all groups of currently produced goods to act as drivers of development has already been exhausted to a large extent. In order to enhance sophistication of Latvia's export structure, the production of goods with their implicit income level exceeding the current average weighted value of the export basket should be augmented. Potential goods for exports include pharmaceutical products, medical, precision and optical instruments as well as chemicals and chemical products. However, it is rather unlikely that comparative advantage in these products can be developed without extra supportive measures taken by the Government.

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Paper provided by Latvijas Banka in its series Working Papers with number 2008/04.

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Date of creation: 10 May 2008
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Handle: RePEc:ltv:wpaper:200804
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  1. Adam B. Jaffe, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits and Market Value," NBER Working Papers 1815, National Bureau of Economic Research, Inc.
  2. Hausmann, Ricardo & Klinger, Bailey, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," Working Paper Series rwp06-041, Harvard University, John F. Kennedy School of Government.
  3. Hausmann, Ricardo & Hwang, Jason & Rodrik, Dani, 2005. "What You Export Matters," Working Paper Series rwp05-063, Harvard University, John F. Kennedy School of Government.
  4. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self Discovery," CEPR Discussion Papers 3356, C.E.P.R. Discussion Papers.
  5. Luis Cabral, 2000. "Stretching Firm and Brand Reputation," Working Papers 00-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Gene M. Grossman & Elhanan Helpman, 1988. "Product Development and International Trade," NBER Working Papers 2540, National Bureau of Economic Research, Inc.
  7. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
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