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TRADE DIVERSIFICATION: DRIVERS AND IMPACTS 7.1 INTRODUCTION By Olivier Cadot, Céline Carrère and Vanessa Strauss-Kahn 7 Policy interest in export diversification is not new but, for over two decades, it was mired in an ideologically loaded debate about the role of the State. Old-time industrial policy having died of its own excesses, the debate over what, if anything, the government should do to promote export growth was contained within the fringe of the economics profession. Mainstream economists were happy to believe that whatever market failures were out there, government failures were worse, and that anyway most governments in developing countries lacked the means to do anything. But by an ironic twist of history, years of (Washington-consensus inspired) fiscal and monetary discipline have put a number of developing-country governments back in a position to do something for export promotion, having recovered room to manoeuvre in terms of both external balance and budget position. So the question is back. With limited guidance from theory, the economics profession’s answer to the return of the industrial-policy debate has been to go back to descriptive statistics (as opposed to the investigation of causal chains). The result is a wealth of new stylized facts. For instance, surprising patterns of export entrepreneurship have emerged from the use of increasingly disaggregated data. One area where theory has proved useful is in the exploration of the linkages between productivity and trade. So-called “new-new” trade models (featuring firm heterogeneity) have highlighted complex relationships between trade diversification and productivity, with causation running one way at the firm level and the other way around (or both ways) at the aggregate level. Even at the aggregate level, new issues have appeared. First, Imbs and Wacziarg (2003) uncovered a curious pattern of diversification and re-concentration in production, prompting researchers to explore whether the same was true of trade. Second, a wave of recent empirical work has questioned traditional views on the “natural-re- 253
Trade and Employment: From Myths to Facts source curse”, challenging the notion that diversification out of primary resources was a prerequisite for growth. Thus, our current understanding of the trade diversification/ productivity/ growth nexus draws on several theoretical and empirical works, all well developed and growing rapidly. It is easy to get lost in the issues, and the present paper’s objective is to sort them out and take stock of elements of answers to the basic questions. Among those questions, the first are simply factual ones — “how is export diversification measured?” and “what are the basic stylized facts about trade export diversification, across time and countries?”, which we explore in sections 7.2 and 7.3, respectively. The third question is about diversification’s drivers, among which industrial policy, and is tackled in section 7.7. In section 7.5, we turn to the relationship between trade diversification, growth and employment. Section 7.6 focuses on the import side; we review the evidence on the impact of import diversification on productivity and extend the discussion to labour-market issues. Section 7.7 concludes. 7.2 MEASURING DIVERSIFICATION 7.2.1 Concentration/diversification indices While the focus of this chapter is on diversification, quantitative indices measure concentration rather than diversification. These indices are mainly used in the income-distribution literature where they illustrate income dispersion across individuals. We will review these measures, taking the example of export diversification (which has anyway been the focus of most papers) but keeping in mind that they apply equally well to imports. All concentration indices basically measure inequality between export shares; these shares, in turn, can be defined at any level of aggregation. Of course, the finer the disaggregation, the better the measure. The most frequently used concentration indices are the ones used in the income-distribution literature: Herfindahl, Gini and Theil. These indices are formalized in technical appendix 7.A.1.1. All three indices can be easily programmed but are also available as packages in Stata. Authors have used one or several of these measures. Across the board, results are not dependent on the index chosen. The Theil (1972) index has decomposability properties that make it especially useful. It can indeed be calculated for groups of individuals (export lines) and decomposed additively into within-groups and between-groups components (that is, the within- and between-groups components add up to the overall index). 1 It is thus possible to distinguish an increased concentration (diversification) that occurs mainly within groups from one that occurred mainly across groups. We will see in the next section a useful application of this property in our context. 1 Technical appendix 7.A.1.2 presents the Theil index decomposition. 254
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Trade and Employment From Myths to
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Trade and Employment From Myths to
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PREFACE Trade negotiations -bilater
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Trade and Employment: From Myths to
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EDITORS AND CONTRIBUTORS EDITORS Ma
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ACKNOWLEDGEMENTS The editors wish t
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NEW EVIDENCE ON TRADE AND EMPLOYMEN
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Chapter 2: New evidence on trade an
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Region Annualized percentage change
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Region 1980 1985 1990 1995 2000 200
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Figure 2.4.b: Long-run association
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20 See Harrison and Rodriguez-Clare
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ASSESSING THE IMPACT OF TRADE ON EM
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Chapter 3: Assessing the impact of
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p * Chapter 3: Assessing the impact
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APPPENDIX 3.A: TABLES Chapter 3: As
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TRADE AND THE INFORMAL ECONOMY 4.1
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Chapter 4: Trade and the informal e
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For more than two decades, quantita
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GENDER ASPECTS OF TRADE 5.1 INTRODU
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and income-earning opportunities ge
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Figure 5.1: Description of gender i
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Chapter 5: Gender aspects of trade
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A third view is that the type of jo
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