DOES WHAT COUNTRIES EXPORT MATTER? THE ASIAN AND LATIN AMERICAN EXPERIENCE

Abstract

The present paper examines the differences in growth performances of Asia and Latin America, in particular, the roles of trade and institutions in explaining the differential growth experiences of the two regions. In examining trade policy instruments as a plausible explanation of growth divergence, we have focused on the emerging pattern and composition of export baskets in the two regions and regional integration and accession to WTO. In a GMM dynamic panel estimation for the period 1975-2005, though it is found that diversification and composition of exports have significant impacts on economic growth in both the regions, diversification within the manufacturing sector is important for Asia only. The common determinants of growth in the two regions are exports, investment, public debt and human capital. On the other hand, the differentiating factors on the diverging growth experiences of Asia and Latin America are infrastructure, regional integration and institutional aspects like patent protection, and WTO.Keywords: Economic Growth, Export Diversification, Export Composition, High Technology Exports, Infrastructure, Human Capital, Patent, IPR, Regional Integration, WTOJEL classification: F13, F43, H54, J24, O34, O43, O57(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONDeterminants of economic growth in general, and trade as an engine of growth in particular, have been one of the most interesting research topics for the economists, both theoretically and empirically. However, there has been a recent shift in the research question from whether trade promotes growth to when does trade promote growth due to the refinements of ideas over the years and new evidence from across the globe. More recent studies in this context emphasize on what a country exports may matter more than how much a country exports. Lederman and Maloney (2007), Agosin (2007) and Hesse (2008) emphasize on the diversification of export basket as one of the important determinants of economic growth. Hausmann et al. (2006) and Rodrik (2006), on the other hand, emphasize that it is the productivity content of the export basket of the countries that matters the most. A case in point is China's export of highly sophisticated products which is considered to be the main driver of its rapid growth over the last two decades.At the same time divergence of growth rates and its pattern across regions and continents have provided the motivation for the economists to search for its plausible explanations. The two continents that have drawn particular interest for such comparative analyses are East Asia and Latin America. Latin America developed much earlier than Asia, in particular East Asia. But its growth rate started slowing down since the 1980s with East Asia catching up faster and then leapfrogging by the turn of the present century. However, these two regions share similar geographical and physical properties in terms of endowments and natural resources, similar proportion of their regions being in the tropic and proximity of the regions to major markets for their trade (Elson, 2006).1Given such geographical similarity, the interesting research question is whether trade and institutions can be plausible explanations of the differential growth experiences of the two regions. Elson (2006) has identified three factors related to public policy, integration and institutions, which can account for the diverging growth performances. The first is the problem of macroeconomic instability in Latin America. The region has long been suffering from problems of fiscal instability and high inflation. The world energy crisis of 1973-1974, followed by heavy lending to the largest Latin American countries, led to the debt crisis of the early 1980s. In contrast, because of the stronger fiscal positions of its governments, low external public debt, and stability of financial system, East Asia dealt with any external shock better than Latin America. …