Innovation, Trade, and Growth
Dani Rodrick is my hero. (Some Austrians faint.) He links to a lovely graph which shows new products (innovation) account for the majority of differences among exports. It’s more complicated than that, and I’m a novice, but I’m going to keep my eye on what’s going on with this line of research.
The first of these (”within”) refers to the component of concentration that is due to concentration within traditional export categories, whereas the second component (”between”) captures the part due to new exports. The figure below shows the trends for these.
Note first that overall export concentration falls during much of economic development, and then begins to rise again once a country reaches a high-income level. This is similar to what Imbs and Wacziag have found for production and employment in a paper that used much more aggregate data.
Second, even though the “within” component accounts for the major part of overall concentration, it is largely the “between” component that accounts for the U-shaped trend in concentration over the development process. This is important because we know from other work (e.g. that of Lederman and Maloney) that export diversification is good for growth.
This is the strongest evidence to date that I have on the role that new products play in shaping the pattern of export composition during the development process.
The paper is by Céline Carrère, Vanessa Strauss-Kahn, and Olivier Cadot.
When you’re done with that, read about how growth strategies are the best long run social strategies, but short run social programs are often not the best long run growth plans.
