Non-Linearities in Specialization and Growth

This paper investigates the link between overall specialization and growth, analyzing the shape of the relationship between the median of the sectoral distribution of the Balassa Index, our summary measure of overall specialization, and the level of per capita income. The median of the Balassa Index distribution has an inverse relation with overall specialization. We analyze the specialization pattern of different countries employing three nonparametric methods: Kernel smoothing, lowess, and rolling regressions procedures. The empirical evidence suggests a non-linear relationship between countries' level of overall specialization and per capita income. We interpret such a non-linear relationship as the result of the different influence that the level of per capita income on one hand, and the existence of country-specific effects on the other, may have on sectoral diversification, according to the stage of development of a country