Proximity and Horizontal Policies: The Backbone of Export Diversification

Salinas, Gonzalo

doi:10.5089/9781513571614.001

Cited by 24 publications

(37 citation statements)

References 12 publications

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“…Enhancing economic complexity should be at the heart of policymakers' agenda, both at the national and international levels, given its strong positive effect on macroeconomic aggregates, including on services export diversification, the latter being also an important engine for economic growth (Anand et al , 2012; Gnangnon, 2021a; Mishra et al , 2011; Stojkoski et al , 2016). Discussing policies that could be conducive to greater economic complexity is beyond the scope of the present article, as such policies are likely to be specific to each country's circumstances and characteristics (Balland et al , 2022; Mealy and Coyle, 2021; Giri et al , 2018; Salinas, 2021; Sørensen et al , 2020; Whitehead and Bhorat, 2021). Additionally, these policies should go beyond diversifying export the product mix and involve a structural transformation of the production structure, including towards sophisticated goods that would be exported by few other countries (Atolia et al , 2021).…”

Section: Discussionmentioning

confidence: 99%

Effect of economic complexity on services export diversification: do foreign direct investment inflows matter?

Gnangnon

2022

IJDI

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Purpose The purpose of this study is to explore the effect of economic complexity on services export diversification. This study has been built on two arguments. The first one draws from Eichengreen and Gupta (2013b) and states that countries that export complex products would have a high penetration in the international goods market and establish a network that could be exploited to expand their range of services export items. Second, by inducing higher inflows of foreign direct investment (FDI), greater economic complexity could contribute to fostering services export diversification. Design/methodology/approach The empirical analysis uses a panel data set of 109 countries (both developed and developing countries) over the period of 1985–2014, and in particular, non-overlapping sub-periods of five-year average data. Building on the two-step system Generalized Method of Moments, the empirical analysis has provided support for the above-mentioned two theoretical hypotheses. Findings The findings indicate that greater economic complexity has been associated with a higher level of services export diversification, and the magnitude of this positive effect is higher for high-income countries than for developing countries. Furthermore, the share of FDI inflows (in percentage of gross domestic product) matters for the effect of economic complexity on services export diversification. Specially, economic complexity exerts a higher positive effect on services export diversification, as the share of net FDI inflows in gross domestic product increases. Research limitations/implications From a policy perspective, the analysis complements previous works on the effects of economic complexity (e.g. on economic growth, income inequality, poverty, etc.), by showing that economic complexity also matters for fostering the diversification of countries' services export items. Enhancing economic complexity should be at the heart of policymakers' agenda, both at the national and international levels, given its strong positive effect on macroeconomic aggregates, including on services export diversification, the latter being also an important engine for economic growth (Anand et al., 2012; Gnangnon, 2021a; Mishra et al., 2011; Stojkoski et al., 2016). Practical implications This study opens an avenue for future research on whether services export diversification influences economic complexity. One avenue for future research could also be to explore the effect of comparative advantage on goods and services (using the Balassa's revealed comparative advantage index) on services export diversification. Future works could also examine how economic complexity affects different categories of services sectors, including traditional services and modern services. Originality/value To the best of the author’s knowledge, this study is the first to address this topic in the literature.

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Section: Discussionmentioning

confidence: 99%

Effect of economic complexity on services export diversification: do foreign direct investment inflows matter?

Gnangnon

2022

IJDI

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“…The emergence of new, modern sectors hinges on the presence of effective government institutions, a favorable business environment and investment climate, and credible macroeconomic policies. Policy failures, which are not necessarily sector-specific, may include a burdensome regulatory framework, high tariffs on critical inputs, an overvalued exchange rate, inadequate infrastructure, or an insufficiently skilled workforce (Salinas 2021). Broad-based structural reforms to tackle these policy failures could support growth with potentially small costs (IMF 2019).…”

Section: Introductionmentioning

confidence: 99%

Industrial Policy for Growth and Diversification: A Conceptual Framework

Salinas¹,

Hasanov²,

Milkov³

et al. 2022

Departmental Papers

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“…This is corroborated by empirical studies in the Global Value Chain (GVC) literature (for example, Cadestin and others, 2016, and Raei and others, 2019), which conclude that gravity equation variables are key determinants of GVC participation. In fact, Salinas (2021) finds that a Proximity to Markets (PM) index measuring a country's geographic proximity to international markets on its own explains about a quarter of the variation in NHM, manufacturing, and crucially complex exports per capita. As expected, in the absence of significant transport costs, the PM index explains less of the variation of services.…”

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confidence: 99%

“…Empirical estimates of the positive impact of stronger education on export development suggests Guatemala's relative weakness in education is a major drawback. Based on Salinas (2021) estimates that an increase in the United Nations Education Index of one standard deviation across all sample countries is associated with an increase of 150 percent in NHM exports. Those estimates suggest that matching Costa Rica's Education Index could increase Guatemala's complex exports by about 230 percent.…”

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confidence: 99%

“…Guatemala could realistically aim to strengthen its governance to match other middleincome countries like those of the Caribbean with a substantial impact on exports. Based on estimated payoffs of governance changes on exports in Salinas (2021), if Guatemala were able to bring up its governance standards to CAR levels it could increase its complex exports by 70 percent. IMF Country Report 18/155 also finds that weak governance weights down on growth and proposes several reform avenues to strengthen governance, including through anti-corruption measures in the fiscal, law enforcement, market regulation, financial sector oversight, and public order and enforcement domains.…”

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