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What Drives the Relationship Between Export Upgrading and Growth? The Role of Human Capital, Institutional Quality, and Economic Development

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Abstract

The main goal of this paper is to empirically examine whether human capital, institutional quality, and economic development affect the relationship between export upgrading and economic growth. Different from most previous studies, which include an interaction term between export upgrading and a conditioning variable, this article applies an innovative dynamic panel threshold regression model to allow for non-linearity and an endogenous determination of the threshold location. The model is implemented using a panel data set of 56 developed and developing countries over the period of 1995–2015. Our main findings are twofold. First, the relation between export upgrading and economic growth appears to be non-linear. Second, we find evidence that export upgrading can only enhance economic growth in countries satisfying certain threshold prerequisites, regarding initial income level, human capital, and institutional quality.

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Notes

  1. For a literature review, see Güneri (2019) and Chrid et al. (2020).

  2. Although a similar approach has been used by Saafi and Nouira (2018), the focus of their study was to determine whether there exist threshold effects of export upgrading on economic growth (tipping-points). The current paper asks a different question: which economic characteristics or threshold variables might explain the transition of the export upgrading–growth relationship from one regime to another?

  3. For more details about the construction of this index, see Hidalgo and Hausmann (2009).

  4. To conserve space, the unit root test results are not reported here but are available from the authors upon request.

  5. Available at atlas.media.mit.edu.

  6. The empirical results are produced by the GAUSS program provided by Seo and Shin (2016).

  7. Since the main interest of this study is to examine whether the impact of export upgrading on economic growth is contingent on the income level, we are only interested in the coefficient of the export upgrading indicator, i.e., the export complexity index (ECI).

  8. The finding is consistent with the argument made by Saafi and Nouira (2018) that rich countries are relatively well endowed with more sophisticated productive capabilities that allow them to exploit all the gains from engaging in an export upgrading process.

  9. As shown in Table 7 in the Appendix, the high human capital regime includes 48 countries; among them, only 2% are low-income countries.

  10. In such kind of analysis, it is not possible to exhaust all the possible contingency factors. It is believed that other threshold variables could be considered, including, but not limited to, financial development and macroeconomic policies. Such guidance seems to be an area for potentially productive future research.

  11. From Tables 6, 7, and 8 in the Appendix, it can be seen that countries satisfying these three preconditions are Australia, Austria, Canada, Denmark, Finland, France, Ireland, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland, and the USA.

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Acknowledgements

The authors wish to warmly thank two anonymous referees for helpful comments and suggestions.

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  1. EAS and Faculty of Economic Sciences and Management of Mahdia, University of Monastir, Monastir, Tunisia

    Ridha Nouira & Sami Saafi

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  1. Ridha Nouira
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Appendix

Appendix

Table 6 Country classification by income regime, based on estimations from Table 3
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Table 7 Countries classification by human capital, based on estimations from Table 4
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Table 8 Countries classification by institutional quality, based on estimations from Table 5
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Nouira, R., Saafi, S. What Drives the Relationship Between Export Upgrading and Growth? The Role of Human Capital, Institutional Quality, and Economic Development. J Knowl Econ 13, 1944–1961 (2022). https://doi.org/10.1007/s13132-021-00788-9

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