The Impact of Exports on Economic Growth: It's the Market Form

Published date01 June 2017
AuthorMichael Jetter
Date01 June 2017
DOIhttp://doi.org/10.1111/twec.12461
The Impact of Exports on Economic
Growth: It’s the Market Form
Michael Jetter
1,2
1
Economics, University of Western Australia, Crawley, WA, Australia and
2
Forschungsinstitut zur
Zukunft der Arbeit GmbH, Bonn, Nordrhein-Westfalen,Germany
1. INTRODUCTION
AFTER trade openness has been introduced into the literature surrounding economic growth
(e.g. Frankel and Romer, 1999), several trade-related characteristics have been proposed.
A ‘natural resource curse’ (Sachs and Warner, 2001) has been hypothesised under which focus-
ing on the export of natural resources may prove detrimental for countries over time; export
diversification (e.g. see de Pi~
neres and Ferrantino, 1997; Imbs and Wacziarg, 2003) may foster
GDP per capita, dampening the impact of exogenous shocks to particular markets; exporting pri-
mary or secondary goods may make a difference (Hausmann et al., 2007). However, we con-
tinue to see exceptions to these propositions. For instance, oil-producing nations have continued
to grow rapidly, even though these countries mostly export natural resources and exhibit very lit-
tle diversification in their export baskets. Other nations export diamonds (e.g. Botswana),
another natural resource, or generally select relatively concentrated export baskets (e.g. Israel),
yet still enjoy considerable growth rates. Thus, is there a unique characteristic of exports that
unites these hypotheses in driving economic growth?
The following pages propose a common denominator under which we can identify growth-
promoting and growth-harming exports. In particular, the hypothesis considers the global mar-
ket form of exported goods and services. Similar to basic microeconomic foundations, sellers
may enjoy higher profit margins in oligopolistic and monopolistic markets, as opposed to
more competitive markets. In other words, if the world market for a certain good is highly
concentrated with few exporting countries, then exporting such a good would allow a country
to enjoy higher growth rates, everything else equal. The underlying reasons for this hypothesis
follow the generic arguments related to monopolies and oligopolies: entry barriers due to high
set-up costs, natural resource abundance or other anomalies that may cause a market to con-
centrate on few producers may allow suppliers to extract larger rents.
After introducing the technical derivation of such an index on the country level, labelled
the average export concentration or AEC index, the paper proceeds to an empirical test.
Specifically, in a conventional growth regression for up to 157 countries in the time frame
from 2000 to 2010, the AEC emerges as a positive and statistically powerful predictor of
economic growth. This result remains robust to the inclusion of country- and time-fixed
effects and the usual control variables proposed by Levine and Renelt (1992) and Mirestean
and Tsangarides (2009). Quantitatively, the result is sizeable, as a one standard deviation
increase in the AEC index, representing a noticeable move towards exporting into more con-
centrated goods markets, is suggested to raise GDP per capita by up to 0.9 percentage points.
Overall, these findings may help us understand how trade characteristics in addition to
the pure volume of trade relate to a country’s income level. The derived results are robust
to the inclusion of other trade characteristics that have been proposed as drivers of economic
growth: export diversification, the importance of natural resources and regulatory barriers to
trade. It is important to note that none of these aspects receive any meaningful support in the
©2016 John Wiley & Sons Ltd
1040
The World Economy (2017)
doi: 10.1111/twec.12461
The World Economy

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