Margins, Gravity, and Causality: Export Diversification and Income Levels Reconsidered

Karsten Mau

No 249, GIGA Working Papers from GIGA German Institute of Global and Area Studies

Abstract: The paper shows that the relationship between GDP per capita and levels of specialization can be predicted differently depending on whether the intensive or the extensive margin is considered. It shows that at the extensive margin countries continuously diversify their exports and that cross-sectional patterns can be captured well by a gravity equation. Prior studies documenting nonmonotone patterns with respecialization appear to have obtained their results from sample-selection bias, the omitted log-transformation of the income variable, and the neglect of control variables. Furthermore, results from dynamic panel analyses (system GMM) suggest that causality goes in both directions, with income having a contemporaneous impact on diversification, while the feedback effect of diversification on GDP per capita may be delayed. This pattern fits into theoretical rationales that view diversification as driven by technology or efficiency and where diversification generates additional revenues as it proves to be persistent.

Keywords: diversification; extensive margin; international trade; technology; gravity equation (search for similar items in EconPapers)
JEL-codes: F11 F14 F43 O11 O40 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/100072/1/791342662.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:gigawp:249

Access Statistics for this paper

More papers in GIGA Working Papers from GIGA German Institute of Global and Area Studies Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().