Export diversification and economic development: A dynamic spatial data analysis

This paper contributes to the empirical literature on the relationship between ‘export variety’ (export diversification) and economic development by relaxing the assumption of cross-country independence and allowing for spatial diffusion of shocks in observed and unobserved factors. Export variety is measured for a balanced panel of 114 countries (1992-2012) using very detailed information on their exports (HS 6-digit product level). The estimation results of a dynamic spatial panel data model confirm the relevance of spatial network effects: indirect effects (spatial spillovers) strongly reinforce direct effects, while spatial proximity to large countries accelerates the diversification process. These results are robust to the choice of the weights matrix (an inverse-distance matrix, an exponential distance matrix and a matrix based on bilateral trade flows are used).