How Exports Matter: Trade Patterns over Development Stages

In this paper we first propose a proxy for the maturity of a country’s export bundle based on the product life cycle theory. Employing a conditional latent class model, we then examine the relationship between export maturity and economic growth for 98 countries during the period 1988-2005. We find a robust and significant non-linear relationship across three endogenously determined clusters of countries. For the most developed cluster, countries tend to grow more rapidly when they export new and innovative products that are in their early stage of product life cycles. In contrast, we identify a cluster of emerging countries where they appear to grow faster by exporting more mature products that are in their later stage of life cycles. This effect is largely absent in the cluster of developing countries. Our results confirm earlier evidence that what you export matters for growth. But more importantly, when you export them in your development stage too matters. Countries in early stages of development should focus on acquiring market share in mature markets with routine technologies whereas emerging economies face the challenge of at some point switching from mature to new products as they approach the technology frontier. At that frontier they must join the advanced economies who continuously switch into (increasingly) less mature innovative products to stay ahead of increasing competition from abroad.