Abstract
We investigate the trade-economic growth nexus in developing countries considering the structure of the external sector. The economic literature has examined the effects on growth of export composition, export diversification and import composition, individually. We add to this discussion by jointly evaluating the role of these three factors in the trade-economic growth nexus. The assessment of the structure of the external sector allows identifying the features that improve the trade-economic growth nexus with relevant economic policy implications for developing countries. Using a sample of 19 developing countries and dynamic panel data models, we found that export composition and export diversification are insignificant. By contrast, the domestic content of exports, the share of high-tech imports and capital goods imports are positively associated with economic growth. Consequently, developing countries growth benefits from high-tech and capital goods imports, and potentially, from the development of an industrial policy able to boost the domestic production of inputs for the exporting sector.
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Source: World Development Indicators, World Bank and Organisation for Economic Co-operation and Development (OECD-Stats), IMF Statistics
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Notes
Although the positive role of high-tech intensity goods trade in export performance, productivity and economic growth is recognized in several empirical works, it is a matter of study the definition and measurement of high-tech goods and industries. While this is an interesting subject, it falls outside the scope of this paper. In this paper, we follow the updated OECD classification based on the proposal by Hatzichronoglou (1997). For a discussion on this regard, see Hatzichronoglou (1997), Carroll et al. (2000), Peneder (2003) and Srholec (2007).
We include the share of 14 export industries according to OECD classification to compute the Herfindahl–Hirschman index: agriculture, forestry and fishing; mining and quarrying; food products, beverages and tobacco; textiles, wearing apparel, leather and related products; paper and printing; chemicals, rubber, plastics and fuel products; other nonmetallic mineral products; basic metals and fabricated metal products, except machinery and equipment; machinery and equipment; transport equipment; furniture, other manufacturing; electricity, gas, steam and air conditioning supply; other activities; total waste.
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Carrasco, C.A., Tovar-García, E.D. Trade and growth in developing countries: the role of export composition, import composition and export diversification. Econ Change Restruct 54, 919–941 (2021). https://doi.org/10.1007/s10644-020-09291-8
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DOI: https://doi.org/10.1007/s10644-020-09291-8