Deductions from the Export Basket: Capabilities, Wealth and Trade

57 Pages Posted: 28 Feb 2011

See all articles by John Sutton

John Sutton

London School of Economics & Political Science (LSE) - Department of Economics

Daniel Trefler

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Date Written: February 2011

Abstract

This paper re-explores the relation between a country's level of wealth and the mix of products it exports. We argue that both are simultaneously determined by countries' capabilities i.e. by countries' productivity and quality levels for each good. Our theoretical setup has two features. (1) Some goods have fewer high-quality producers/countries than others i.e. there is Ricardian comparative advantage. (2) Imperfect competition allows high- and low-quality producers to coexist, which we refer to as 'product ranges'. These two features generate a very particular non-monotonic, general equilibrium relationship between a country's export mix and its wage (GDP per capita). We show that this non-monotonicity permeates the 1980-2005 international data on trade and GDP per capita. Our setup also explains two other facets of the data: (1) Product ranges are huge and (2) for the poorest third of countries, changes in export mix substantially over-predict growth in GDP per capita. This suggests that the main challenge for low-income countries is to raise quality and productivity in their existing product lines.

Suggested Citation

Sutton, John and Trefler, Daniel, Deductions from the Export Basket: Capabilities, Wealth and Trade (February 2011). NBER Working Paper No. w16834. Available at SSRN: https://ssrn.com/abstract=1770387

John Sutton (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Daniel Trefler

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-4190 (Phone)
416-978-6713 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
27
Abstract Views
272
PlumX Metrics