You have got to be a real trade buff to enjoy this post

Rich countries engage in international trade more than poor countries do. They also have more diversified export baskets. That much is pretty well known. But how exactly is this increase in the volume of trade and greater diversification achieved?  Is it through greater volumes of exports of the traditional kind, or through new products that were not previously exported?  There is now a small cottage industry that has been looking at these questions, shedding light on the role that international trade and its transformation plays in the economic growth process.

An interesting paper by Céline Carrère, Vanessa Strauss-Kahn, and Olivier Cadot generates some new results.  These authors analyze 6-digit trade statistics to decompose the average pattern of export diversification during economic development into a "within" and "between" component:  The first of these ("within") refers to the component of concentration that is due to concentration within traditional export categories, whereas the second component ("between") captures the part due to new exports.  The figure below shows the trends for these.

 

Note first that overall export concentration falls during much of economic development, and then begins to rise again once a country reaches a high-income level.  This is similar to what Imbs and Wacziag have found for production and employment in a paper that used much more aggregate data.

Second, even though the "within" component accounts for the major part of overall concentration, it is largely the "between" component that accounts for the U-shaped trend in concentration over the development process.  This is important because we know from other work (e.g. that of Lederman and Maloney) that export diversification is good for growth. 

This is the strongest evidence to date that I have on the role that new products play in shaping the pattern of export composition during the development process.

Comments

[John V]

Dr. Rodrik,

I just received your book today. I look forward to reading it.

Hopefully, I will understand your Free Trade position better after reading it.

recall:

http://rodrik.typepad.com/dani_rodriks_weblog/2007/11/whats-wrong-wit.html#comment-89691158

[Gallagher]

This is cutting edge stuff. From a trade policy perspective though we have to ask what makes countries move along the "cones of diversification." The textbook and even moreso "globalization cheerleaders" imply that nations will diversify virtually automatically as long as they engage in "free" trade and focus on production and export along a comparative advantage.

If we put the diversification results of papers like this on the left hand side as a dependent variable, what might cause this diversification? Is it truly and automatic thing? If so why does Nigeria continue to offer only one product in world markets?

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seems
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only if your firms
battle
for a piece of ever more and
new product markets
out there across the seas
where
the state of technique
common to world markets
wait to clobber the inferior or the too costly

just
policy coddled domestic markets ain't enough
necessary but not enough

why ??

cause import subs get hammered by trans natt comp
once the doors get opened
and eventually they always do

the post wall fall
socialist camp ground shows this in spades

[Carlos]

If all country are going to trade manufacturing goods, finally the agriculture goods will be scarce, and then its price will go up. So, there will be a greater incentive to become an agricultural country.

Basically, I want to say that the calculation in the paper is bias due to the availability of data because up to now world data only show the trend to become an industrial country.

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