Export Variety and Country Productivity

The authors study the link between export product variety and country productivity based on data from 34 industrial and developing countries, from 1982 to 1997. They measure export product variety by the share of U.S. imports on the set of goods exported by each sampled country relative to the world. It is a theoretically sound index which is consistent with within-country GDP maximization, as well as cross-country comparison. They construct country productivity based on relative endowments and product variety. Increases in output product variety improve country productivity as the new mix of output may better use resources of the economy, and improve allocation efficiency. Such effects depend on the elasticity of substitution in production between the different varieties. The more different the varieties are in terms of production, the more efficient it is to use the endowments of the economy when a new variety is available, which leads to productivity gains. In addition, as suggested in the literature, export product variety depends on trade costs, such as tariffs, distance, and transport costs. Such trade cost variables are used as instruments to help the authors identify the effects of export variety on country productivity. Empirical evidence supports their hypothesis. Overall, while export variety accounts for only 2 percent of cross-country productivity differences, it explains 13 percent of within-country productivity growth. A 10 percent increase in the export variety of all industries leads to a 1.3 percent increase in country productivity, while a 10 percentage point increase in tariffs facing an exporting country leads to a 2 percent fall in country productivity.

Bibliographic Details

Main Authors:	Feenstra, Robert, Looi Kee, Hiau
Language:	English en_US
Published:	World Bank, Washington, D.C. 2004-09
Subjects:	AGRICULTURE, ALLOCATIVE EFFICIENCY, AVERAGE PRODUCTIVITY, BASE YEAR, BASIC METALS, CAPITAL FORMATION, CAPITAL STOCK, COST FUNCTIONS, DEFLATORS, DEVELOPING COUNTRIES, ECONOMICS, ELASTICITIES, ELASTICITY, ELASTICITY OF SUBSTITUTION, EMPIRICAL EVIDENCE, ENDOGENEITY, EQUATIONS, EQUILIBRIUM, EXOGENOUS VARIABLES, EXPORTS, GDP, GDP DEFLATOR, GROWTH MODELS, GROWTH RATE, IMPORTS, INPUT PRICES, INVENTORY, LABOR FORCE, MINING, MONOPOLISTIC COMPETITION, NATIONAL INCOME, PERFECT COMPETITION, PETROLEUM, POSITIVE EFFECTS, PRICE DIFFERENCES, PRICE INDEXES, PRODUCT DIFFERENTIATION, PRODUCTION FUNCTION, PRODUCTIVE RESOURCES, PRODUCTIVITY, PRODUCTIVITY GROWTH, QUOTAS, SUPPLY CURVES, TARIFF BARRIERS, TIME SERIES, TOTAL FACTOR PRODUCTIVITY, TOTAL OUTPUT, TOTAL REVENUE, TRADE BARRIERS, TRADE LIBERALIZATION, TRADE VOLUME, TRANSPORT, VALUE ADDED, VALUE OF OUTPUT, WELFARE GAINS,
Online Access:	http://documents.worldbank.org/curated/en/2004/09/5185180/export-variety-country-productivity https://hdl.handle.net/10986/14228
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