Export Sophistication Research Articles

How do Financial Support and Technological Innovation Affect Export Sophistication? An Empirical Research Based on China’s High-Tech Industry

Based on the provincial data of China’s high-tech industry from 2005 to 2015, we use the methods such as interaction effect, mediation effect and threshold effect on the basis of reconstructing financial support to explore how financial support affects export sophistication through technological innovation. The test results show that: First, from the perspective of the transmission mechanism of financial support affecting export sophistication, it deepens the understanding of the inherent law of export sophistication and the impact of finance and innovation. Second, we construct the financial marketization index from the aspects of financial market competition” and marketization of credit fund allocation”, which has inspired a new idea for the scientific acquisition of key data. Third, this paper discusses the impact of financial support on the export sophistication of enterprises with different characteristics like scale, extroversion and economic performance. It not only expands the research field of export sophistication, but also provides a basis for the government to formulate policies. Theoretically, first, financial support can alleviate the capital flow constraints in the production and trading links, which improves the efficiency of innovation resource conversion. Financial support increases regional capital, changes a country’s capital-labor ratio as well as offers support for the application of innovative technologies. Financial support affects the accumulation of innovative human capital. Second, the direct manifestation of technological innovation on export sophistication is to improve the technical level, while the improvement of productivity level is an indirect manifestation. Technological innovation helps export sophistication by breaking technical barriers to trade. Third, financial support conduces to achieve external financing, promotes technological innovation and then increases the export sophistication of products. Therefore, financial support will enhance export sophistication by strengthening technological innovation. In conclusion, financial support and technological innovation significantly raise export sophistication; the overall improvement effect is enhanced by financial support; it shows obvious threshold characteristics; for companies that are larger, more extroverted, and better economic performance, financial support has a greater effect on export sophistication; financial support mainly enhances export sophistication through technological innovation investment, transformation and spillover. The conclusion has important implications. On the one hand, the government sectors should grasp the key points of financial system reform, formulate supportive policies to promote innovation and endorse the upgrading of export product quality. On the other hand, while promoting the common development of finance and innovation, we must appropriately improve the scale, extroversion and economic performance of innovative enterprises. In addition, the government should attach importance to intellectual property rights, optimize the industrial structure, and increase export sophistication to achieve the rising of the global value chain.

The Leap of the Tiger: Escaping the Middle‐income Trap to the Technological Frontier

AbstractThe Asian miracles along with a handful of European economies and oil exporters are the few countries that reached high‐income status during 1960–2014. In contrast, many good‐performing countries such as Malaysia have been middle‐income countries for several decades despite relatively strong growth and a substantial improvement in education and export sophistication. We argue that the key factor differentiating the Asian miracles from economies like Malaysia is the creation of technologies by domestic firms and leapfrogging to the technological frontier at an early stage of development.

Power and Export Sophistication in Buyer-Supplier Relationships: Insights from Colombian Customs Data

This paper investigates the association between buyer-supplier international trade relationships and supplier’s product upgrading. We proxy the suppliers’ upgrading with a measure of product sophistication. We first propose a measure of power in the trade relationship, combining the dependence of each firm on the trading partner and their market shares. Using transaction data from Colombia, we next estimate if the measure of power relationship predicts a supplier’s export sophistication, the probability of adding a new product in the trading relationship, and that of increasing export sophistication. We find that suppliers that are highly dependent on buyer’s imports are more likely to fall into a specialisation trap in low sophistication products. Buyers with large market shares trade in sophisticated products, therefore with little margin for upgrading; suppliers with large market shares are more likely to introduce new products, but trade pairs where the buyer depends on the supplier are more likely to upgrade. We further test whether these relationships hold across different destination countries, finding in particular that buyers dominating the market in the US tend to import low-sophistication products and make it harder for suppliers to upgrade. We contribute to the recent literature on buyer-supplier relationships by explicitly including a measure of power into our analysis. In doing this, we also offer further support and complement the qualitative evidence put forward by the literature on governance in global value chains (GVCs).

Trade integration and export diversification: El Salvador’s trade integration and export diversification: El Salvador’s trade with the United States and Central America

This article conducts a comparative analysis of the diversification of El Salvador’s baskets of exports to the United States and Central America. It uses the most detailed level of disaggregation available and organizes products by technology intensity. The results show greater export diversification and sophistication in trade with Central America. Evidence is also found that, where El Salvador is concerned, it is more advisable to strengthen South-South integration, especially within Central America, than North-South integration.

The nexus between outward foreign direct investment and export sophistication: new evidence from China

ABSTRACTThis article investigates the bidirectional causal relationship between outbound foreign direct investment (ODI) and export sophistication in China by using autoregressive distributed lag (ARDL) techniques. The findings detect cointegration and bidirectional causal relationship between export sophistication and ODI. The empirical evidence supports that ODI strongly promotes export sophistication and export sophistication weakly encourages Chinese ODI to go out global. The nexus between ODI and export sophistication is good news for China to enhance the quality of exports and catch-up on developed economies. The control variables of trade openness, human capital and quality of institutions improve the strength of cointegration between ODI and export sophistication and play a significant role in promoting the two variables of our interest.

Measurement and comparison of export sophistication of the new energy industry in 30 countries during 2000–2015

Based on the traditional export sophistication indices used at a national level, three indices for measuring the export sophistication of the new energy industry are proposed. Meanwhile, data from 30 countries from 2000 to 2015 in the UN Comtrade database are used to calculate and compare export sophistication of global sub-divided new energy products and new energy industries at a transnational level. Moreover, the development levels of new energy industries in typical counties and regions are analysed through use of a regional anomaly test. The research results demonstrate that new energy products are ranked, in descending order, as: wind, biomass, nuclear, and solar energy products according to their technical contents, while nuclear power products show higher technical content than biomass energy products when considering product quality differences. Besides, the technical contents of new energy industries in different countries show regional heterogeneity to a certain extent: the new energy industries in Europe present increasingly evident superiority with time in terms of the technical content; the technical content of new energy industries in Asia presents a growing gap with other countries; while the technical content of new energy industries in America gradually catches up with other countries.

Causality of Economic Growth and Openness in ASEAN-5

Objective - This study aims to determine the relationship between FDI and trade and its effect on economic growth in ASEAN-5 countries using the Engel-Granger causality method. Methodology/Technique - The study uses OLS panel regression analysis to identify the relationship between the variables in each country. The results of the Engel-Granger causality test indicate that there is a two-way relationship between economic growth and FDI, and economic growth and international trade. Findings - When tested together through panel regression, it is concluded that the best model is a random effect method (REM) in which FDI and international trade significantly influence economic growth in the same direction. However, the relationship between FDI and international trade and its effect on economic growth in Indonesia, the Philippines and Thailand was negative, whilst in Malaysia and Singapore the relationship has a directional trend. Novelty - To reinforce the FDI inflows, authorities should continue the progressive reduction of barriers, and increase the sophistication of quality exports to compete in the global market. This paper is the first of its kind to analyze the role of both FDI and exports in the ASEAN5 economies using panel analysis. Type of Paper: Empirical. Keywords: Economic Growth; FDI; Openness; Engle-Granger Causality. JEL Classification: F02, F10, F41. DOI: https://doi.org/10.35609/jber.2019.4.1(1)

Exchange rate movements, export sophistication and direction of trade: the development channel and North–South trade flows

AbstractWe study the effects of real exchange rate (RER) changes on trade flows considering the skill content and origin/destination of products in a North–South framework. The empirical analysis is based on bilateral trade flows in five product categories of technology-and-skill intensities between 172 countries during 1962–2012. Consistent with the development channel, we find that both the composition and direction of trade affect how exports respond to RER changes. We find that high-skill manufactures and primary goods are the least affected from RER depreciation and volatility. The strongest effects are found for medium-skill, low-skill and resource-intensive manufactures. We also show that these effects depend on the direction of trade. Southern exports are more sensitive to RER than Northern exports in all product categories except for primary goods. Regarding volatility, South–North exports are hurt the most while North–South the least. Also, South–South exports appear to be less sensitive to volatility in all product groups than South–North. Overall, this paper provides a synthesis of the recent neoclassical international trade literature with the heterodox development literature.

Export Structure Upgrading and Economic Growth in the Western Balkan Countries

ABSTRACTIn this paper, we seek to analyze the impact that the ability to produce more sophisticated goods has on the economic performance of the Western Balkan region and to determine the factors fostering this process. To do so, we elaborate an export sophistication index, à la Hausmann. The outcomes obtained show that export sophistication has a positive and significant effect on growth in these economies. Additionally, we found that this process is driven more by the sophistication in medium-skill and technology-intensive manufactures goods rather than through sophistication in high-skill goods. Our findings also confirm that a greater participation in international production networks and a better institutional environment stimulates the upgrading of exports, and the subsequent economic growth of these economies.

Empirical analysis of export performance and economic growth: the case of Macedonia

The main aim of the paper is to investigate the export structure of Macedonian economy at product level and to analyse the impact of export sophistication on economic growth. The results show that Macedonian export has recorded a significant positive trend in the last two decades, but the export structure is still highly concentrated (the top 10 products have nearly half of the total country's export) and it is composed from products with relatively low complexity level (garments, basic metals, agricultural products). Additionally, the estimated results based on vector autoregression (VAR) model and Granger causality test demonstrate positive and statistically significant causal relationship between export sophistication and economic growth for the period 1995-2017. Hence, policy makers should design a policy that will initiate the process of export diversification and structural transformation by moving from products with lower added value to products with high complexity in order to accelerate the growth rate.

Intellectual Property Rights Protection and Export Quality Upgrading

This paper evaluates the impact of effective IPRs protection on export quality using a factor-proportion model and a sample of 96 Developing countries and economies in transition between 1996-2011. I find that countries with more effective IPRs protection have comparative advantage in producing and exporting higher quality R&D intensive goods. This effect is however contingent on both a country’s level of development and technological capability. The results are robust to batteries of sensitivity checks and alternative indicators of export quality including, export sophistication and complexity.

Export Sophistication Index of Manufacturing Industry in China: A Literature Review

Export Sophistication Index of Manufacturing Industry in China: A Literature Review

Trade sophistication in developing countries: Does export destination matter?

We investigate whether exports to developed economies stimulate export sophistication (represented by UNCTAD’s index of export similarity) in developing countries. Results from fixed-effects estimations suggest that exporting to developed economies enhances the sophistication of exports in the exporting country but there are diminishing returns to this effect. We also find non-linear effects from FDI and income on export sophistication with the effect of income exhibiting diminishing returns which suggests that the gains from exporting to developed economies are higher for lower-income countries; i.e., as income increases, the gains taper off. We discuss the policy implications of these results.

Cultural diversity and export sophistication

By extending the Hausmann et al., (2007)'s theoretical model involving cost discovery, we show that cultural diversity affects export sophistication by increasing the degree of heterogeneity in the economy. Specifically, cultural diversity pushes the technology frontier of the economy outwards, which improves export sophistication level. Our theoretical results suggest that cultural diversity also increases the growth rate of export sophistication by improving the economy's ability to operate closer to its technology frontier. We use panel data that covers 85 countries over the 1995–2014 period to empirically evaluate our theoretical predictions. Pooled and random effects regression results show that cultural diversity and the degree of export sophistication are positively related and this association is statistically significant. However, fixed effects estimation results show that the impact of cultural diversity on growth rate of export sophistication is statistically insignificant. Finally, we find that the impact of cultural diversity on export sophistication does not vary significantly on an annual basis. However, over longer periods, this effect increases in size.

Export Sophistication: A Dynamic Panel Data Approach

ABSTRACTIn this article, we analyze export sophistication based on a large panel dataset (2001–2015; 101 countries) and using various estimation algorithms. Using Monte Carlo simulations, we evaluate the bias properties of estimators and show that GMM-type estimators outperform instrumental-variable and fixed-effects estimators. Based on our analysis we document that GDP per capita and the size of the economy exhibit significant and positive effects on export sophistication; weak institutional quality exhibits negative effect. We also show that export sophistication is path-dependent and stable even during a major economic crisis, which is especially important for emerging and developing economies.

EU-Korea FTA and Its Impact on V4 Economies. A Comparative Analysis of Trade Sophistication and Intra-Industry Trade

This paper investigates selected short- and mid-term effects in trade in goods between the Visegrad countries (V4: the Czech Republic, Hungary, Poland and the Slovak Republic) and the Republic of Korea under the framework of the Free Trade Agreement between the European Union and the Republic of Korea. This Agreement is described in the “Trade for All” (2015: 9) strategy as the most ambitious trade deal ever implemented by the EU. The primary purpose of our analysis is to identify, compare, and evaluate the evolution of the technological sophistication of bilateral exports and imports. Another dimension of the paper concentrates on the developments within intra-industry trade. Moreover, these objectives are approached taking into account the context of the South Korean direct investment inflow to the V4. The evaluation of technological sophistication is based on UNCTAD’s methodology, while the intensity of intra-industry trade is measured by the GL-index and identification of its subcategories (horizontal and vertical trade). The analysis covers the timespan 2001–2015. The novelty of the paper lies in the fact that the study of South Korean-V4 trade relations has not so far been carried out from this perspective. Thus this paper investigates interesting phenomena identified in the trade between the Republic of Korea (ROK) and V4 economies. The main findings imply an impact of South Korean direct investments on trade. This is represented by the trade deficit of the V4 with ROK and the structure of bilateral trade in terms of its technological sophistication. South Korean investments might also have had positive consequences for the evolution of IIT, particularly in the machinery sector. The political interpretation indicates that they may strengthen common threats associated with the middle-income trap, particularly the technological gap and the emphasis placed on lower costs of production.

(De)industrialisation and lessons for industrial policy in Central and Eastern Europe

Over the past two and a half decades, the economic landscape of Central and Eastern European countries (CEECs) has considerably changed. The demise of traditional industries and the rise of the service sector during the 1990s inclined economic structure towards deindustrialisation. In years that followed, new industries emerged in many of these countries and brought them back on the route of reindustrialisation. Across countries, this process developed at an uneven pace. The recent rise of awareness about the importance of industrial development for the well-being of nations makes it relevant to investigate the sources behind changes in the economic structure of CEECs. Our findings reveal that reindustrialisation takes place at an uneven pace. No support was found for horizontal economy-wide industrial policies advocated within new classical economics. Strong impulse to reindustrialisation comes through improvements in export sophistication. Such findings are in line with those on the position of CEECs in global value chains.

Causality nexus of exports, FDI and economic growth of the ASEAN5 economies: evidence from panel data analysis

ABSTRACTThis paper analyzes the causal relationships between exports, FDI and economic growth among the ASEAN5 countries. We have used a three-stage procedure based on unit root, co-integration and causality tests applied to the panel data from 1981 to 2013. The results reveal that there is a bi-directional causal relationship between FDI and growth in the long run, while there is a unidirectional causal relationship from FDI to exports in the short run. Our results also confirm that the export-led growth (ELG) and FDI-led growth hypotheses hold true in the long and short run. To reinforce the FDI inflows, authorities should continue the progressive reduction of barriers, and increase the sophistication of quality exports to compete in the global market. This paper is the first of its kind to analyze the role of both FDI and exports in the ASEAN5 economies using panel analysis.

Intelligence and Export Sophistication: A Cross-Country Test

We explore the effect of national IQs on export sophistication using data for 138 nations for the year 2013, taking into account a set of confounding factors. National IQs were correlated at 0.61 with logged EXPY, which measures the sophistication of the entire export basket of a nation, and at 0.59 with KOF, a measure of globalization. The findings show that one standard deviation increase in intelligence leads to a slightly more than a half standard deviation increase in sophistication of the export basket. Moreover, intelligence explains nearly 33% of global variation in export sophistication.

Sharp Instrument: A Stab at Identifying the Causes of Economic Growth

We shed new light on the determinants of growth by tackling the blunt and weak instrument problems in the empirical growth literature. As an instrument for each endogenous variable, we propose average values of the same variable in neighboring countries. This method has the advantage of producing variable-specific and time-varying—namely, “sharp”—and strong instruments. We find that export sophistication is the only robust determinant of growth among standard growth determinants such as human capital, trade, financial development, and institutions. Our results suggest that other growth determinants may be important to the extent they help improve export sophistication.