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Export variety and the economic performance of countries

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Abstract

We explore the relationship between export variety and economic development, using data on OECD countries between 1964 and 2003. We show that structural change in the world economy has a particular arrow of time leading to a growing variety of exports. Distinguishing between related variety (within sectors) and unrelated variety (variety between sectors), we also show that related variety stimulates growth instantaneously, while unrelated variety only promotes growth with a considerable time lag. This finding is in line with the evolutionary notions that economic development and international trade patterns are path dependent.

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Notes

  1. Factor endowments are generally acknowledged to be important determinants of economic development through their effect on export specialization patterns. However, effects of endowments on the rate of development are expected to be minor, and to decrease in the future as economic development becomes increasingly knowledge-based.

  2. The observation of such persistent asymmetries has also given rise to the concept of the national innovation system (Freeman 1987; Lundvall 1992; Edquist 1997).

  3. It must be pointed out that, in this context, variety can be used at a higher level of aggregation than the traditional one prevalent in much of the economic literature on the subject (Dixit and Stiglitz 1977; Lancaster 1975). While traditionally variety measured the degree of differentiation of a product group, in the present paper it is used to measure the degree of differentiation of economic systems at different levels of aggregation, starting from a firm or an individual product and ending with the world economy. In this paper, then, variety is a measure of the extent of differentiation of the economic system as a whole.

  4. The claims that (1) the variety of economic system has grown, and, (2) has to grow in order to allow the further development of the system, find support in the endogenous growth literature. Amongst recent endogenous growth models, those by Romer (1990) contribute to the debate about variety by assuming that R&D activities create new types of capital goods which then accumulate in the economy. Although Romer does not use explicitly the concept of variety, in his models at least the variety of capital goods is bound to increase during the process of economic development. This model has also motivated some empirical research testing the relationship between variety and economic growth using employment data (Funke and Ruhwedel 2001a).

  5. An approximate demonstration of this proposition is given in Saviotti (2003). There it is shown that developing countries have different catch up strategies, based on a mixture of specialization, variety growth and entry into different niches. The success of these strategies can be expected to depend among other variables on the previous production structure of the country and on the time span over which the strategy is applied. At this point, it is important to introduce the distinction between related and unrelated variety.

  6. The trends for Norway can be explained by its specialization in oil and fisheries, and the trends for Ireland by the specialization in computers and pharmaceuticals after the 1980s following an initial growth of export variety.

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Acknowledgment

Comments by Frank Neffke are gratefully acknowledged. All errors remain ours.

Author information

Authors and Affiliations

  1. UMR GAEL, Université Pierre Mendés-France, P. O. Box BP 47, 38040, Grenoble, Cedex 9, France

    Pier Paolo Saviotti

  2. GREDEG, CNRS, UNSA, 250 rue Albert Einstein, 06560, Valbonne, France

    Pier Paolo Saviotti

  3. Urban and Regional Research Centre Utrecht (URU), Section of Economic Geography, Faculty of Geosciences, Utrecht University, P. O. Box 80115, 3508 TC, Utrecht, The Netherlands

    Koen Frenken

Authors
  1. Pier Paolo Saviotti
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  2. Koen Frenken
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Correspondence to Pier Paolo Saviotti.

Appendix

Appendix

Annex

Source: OECD trade databases

AUS is Australia

CAN is Canada

CHE is Switzerland

DEU is Germany

DNK is Denmark

ESP is Spain

FIN is Finland

FRA is France

GBR is Great Brittain

GRC is Greece

IRL is Ireland

ITA is Italy

JPN is Japan

NLD is Netherlands

NOR is Norway

NZL is New Zealand

PRT is Portugal

SWE is Sweden

TUR is Turkey

USA is USA

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Saviotti, P.P., Frenken, K. Export variety and the economic performance of countries. J Evol Econ 18, 201–218 (2008). https://doi.org/10.1007/s00191-007-0081-5

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