Impact of export upgrading on tax revenue in developing and high-income countries

Abstract

Empirical studies usually analyse the relationship between an economy’s trade sector and tax revenue in developing countries through the effect of trade liberalization on tax revenue. This paper takes a different angle by examining the impact of export upgrading strategies (export diversification and improvement in export quality) on non-resource tax revenue. The panel data-set covers a sample of 172 countries, including both developed and developing countries, spanning the period 1980–2010. The analysis is conducted both on the entire sample and sub-samples. The findings indicate that export product upgrading exerts a positive and significant effect on non-resource tax revenue, including for the sub-samples considered, with the exception of low-income countries for which we observe mixed results. Moreover, countries which upgrade their export products in a context of trade openness consistently experience higher non-resource tax revenue, both in the short and long term.