The export sophistication and economic growth: Evidence from cross-country andpanel analysis

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The export sophistication and economic growth: Evidence from cross-country andpanel analysis

By Mai Kien Trung (VNP 25)

Supervisor: Dr. Pham Dinh Long

Abstract:

Conventional belief states that the export structure has a vital role in explaining economic growth. Hausmann, Hwang, and Rodrik (HHR) (2007) successfully measure export sophistication by introducing the widely used PRODY and EXPY in the famous paper "What you export matters." HHR claimed that the higher EXPY leads to faster subsequent economic growth. In contrast to its wide usage, only a handful of authors discuss how to build and interpret them. Huber (2017) proves that these indicators are sensitive to the small change to the sample, the calculation procedure, and the disaggregation level. Hence, employing these indicators in empirical works may lead to bias in economic relationships, especially between export sophistication and economic growth. In the present study, the author carefully considers three issues and employs the resulting PRODY and EXPY to investigate the growth effect of export sophistication. The study uses the BACI dataset from CEPII that contains over 150 million disaggregated bilateral trade flows at HS 6-digits for over 200 countries from 1996 to 2018. The study finds that the magnitude of the growth effect of EXPY is smaller than the one in HHR but more significant after controlling some important determinants of economic growth. The coefficient estimated by the system-GMM method implies that a 10% increase in EXPY is associated with a 0.48 percentage points increase in subsequent growth.

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Mai Kien Trung_VNP25_2020.pdf

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