Publication: Export Variety and Country Productivity
Date
2004-09
ISSN
Published
2004-09
Author(s)
Feenstra, Robert
Looi Kee, Hiau
Abstract
The authors study the link between
export product variety and country productivity based on
data from 34 industrial and developing countries, from 1982
to 1997. They measure export product variety by the share of
U.S. imports on the set of goods exported by each sampled
country relative to the world. It is a theoretically sound
index which is consistent with within-country GDP
maximization, as well as cross-country comparison. They
construct country productivity based on relative endowments
and product variety. Increases in output product variety
improve country productivity as the new mix of output may
better use resources of the economy, and improve allocation
efficiency. Such effects depend on the elasticity of
substitution in production between the different varieties.
The more different the varieties are in terms of production,
the more efficient it is to use the endowments of the
economy when a new variety is available, which leads to
productivity gains. In addition, as suggested in the
literature, export product variety depends on trade costs,
such as tariffs, distance, and transport costs. Such trade
cost variables are used as instruments to help the authors
identify the effects of export variety on country
productivity. Empirical evidence supports their hypothesis.
Overall, while export variety accounts for only 2 percent of
cross-country productivity differences, it explains 13
percent of within-country productivity growth. A 10 percent
increase in the export variety of all industries leads to a
1.3 percent increase in country productivity, while a 10
percentage point increase in tariffs facing an exporting
country leads to a 2 percent fall in country productivity.
Citation
“Feenstra, Robert; Looi Kee, Hiau. 2004. Export Variety and Country Productivity. Policy Research Working Paper;No.3412. © World Bank, Washington, D.C.. http://hdl.handle.net/10986/14228 License: CC BY 3.0 IGO.”
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