Relatedness, Knowledge Diffusion, and the Evolution of Bilateral Trade

26 Pages Posted: 19 Sep 2017

See all articles by Bogang Jun

Bogang Jun

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory

Aamena Alshamsi

Masdar Institute of Science and Technology (MIST)

Jian Gao

Northwestern University - Center for Science of Science and Innovation; Northwestern University - Kellogg School of Management; Northwestern University - Northwestern Institute for Complex Systems (NICO)

César Hidalgo

University of Toulouse; University of Manchester; Harvard University

Date Written: September 15, 2017

Abstract

During the last decades two important contributions have reshaped our understanding of international trade. First, countries trade more with those with whom they share history, language, and culture, suggesting that trade is limited by information frictions. Second, countries are more likely to start exporting products that are similar to their current exports, suggesting that knowledge diffusion among related industries is a key constrain shaping the diversification of exports. But does knowledge about how to export to a destination also diffuses among related products and geographic neighbors? Do countries need to learn how to trade each product to each destination?

Here, we use bilateral trade data from 2000 to 2015 to show that countries are more likely to increase their exports of a product to a destination when:

(i) they export related products to it,

(ii) they export the same product to the neighbor of a destination,

(iii) they have neighbors who export the same product to that destination.

Then, we explore the magnitude of these effects for new, nascent, and experienced exporters, (exporters with and without comparative advantage in a product) and also for groups of products with different level of technological sophistication. We find that the effects of product and geographic relatedness are stronger for new exporters, and also, that the effect of product relatedness is stronger for more technologically sophisticated products. These findings support the idea that international trade is shaped by information frictions that are reduced in the presence of related products and experienced geographic neighbors.

Keywords: International trade, Collective learning, Economic complexity, Knowledge diffusion

JEL Classification: F10, F20, O10

Suggested Citation

Jun, Bogang and Alshamsi, Aamena and Gao, Jian and Hidalgo, César, Relatedness, Knowledge Diffusion, and the Evolution of Bilateral Trade (September 15, 2017). Available at SSRN: https://ssrn.com/abstract=3037720 or http://dx.doi.org/10.2139/ssrn.3037720

Bogang Jun (Contact Author)

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory ( email )

20 Ames St.
Cambridge, MA 02139-4307
United States

Aamena Alshamsi

Masdar Institute of Science and Technology (MIST) ( email )

MASDAR
PO Box 54115
Abu Dhabi
United Arab Emirates

Jian Gao

Northwestern University - Center for Science of Science and Innovation ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Northwestern University - Northwestern Institute for Complex Systems (NICO) ( email )

Chambers Hall
600 Foster Street
Evanston, IL 60208-4057
United States

César Hidalgo

University of Toulouse ( email )

41 Allées Jules Guesde - CS 61321
Toulouse
France

University of Manchester ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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