Economic Development and the Margins of Trade: Are the Least Developed Countries Different?

Abstract

We use the Exporter Dynamics Database to identify differences in the margins of export growth for three country groups: high-income, middle-income, and least developed countries. The growing literature on trade dynamics suggests that economic development comes with trade growth on two margins -- the extensive margin (number of exporters) and the intensive margin (average exporter size). By controlling for country groups, we reveal novel relationships between economic development and the margin of export growth. While previous studies find a positive link between economic development and average exporter size, we find that this link is weakest for least developed countries (LDCs) and strongest for high-income countries. For the number of exporters, we find a positive relationship between the extensive margin and economic development for LDCs, but negative or weak correlations between the extensive margin and economic development for the other country groups. The findings, which are robust to various alternative specifications, imply that the drivers of export growth and economic development for the poorest countries differ significantly from growth drivers in middle-income and high-income economies.

Keywords: Intensive margin, extensive margin, truncated top, missing middle