Services Export Diversification and Economic Growth

Abstract

The present article investigates the effect of services export diversification on economic growth by relying on a sample of 131 countries over the period 1985-2014. The empirical results, based on the two-step system Generalized Methods of Moments (GMM), has suggested that services export diversification enhances economic growth in developing countries, whereas in High Income Countries (HICs), services export specialization promotes economic growth. Furthermore, services export diversification enhances economic growth as countries experience a rise in their services exports growth, with the magnitude of this positive effect increasing as the growth rate of services exports rises. Finally, services export diversification tends to be positively associated with economic growth, but as countries enjoy greater trade openness, they tend to enhance their services export specialization so as to enjoy higher economic growth. Interestingly, it is services export specialization that promotes economic growth as countries better integrate into the international trade market. One key message conveyed by the analysis is the importance of services export diversification (or concentration) for economic growth, including when countries further open up to international trade.

Effect of Economic Complexity on Services Export Diversification: Do Foreign Direct Investment Inflows Matter?

“…From a policy perspective, the analysis complements previous works on the effects of economic complexity (for example 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 not only its strong positive effect on macroeconomic aggregates such as economic growth, income inequality, poverty…etc, but also on services export diversification, the latter being also an important engine for economic growth (e.g., 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 (e.g., the works by Mealy andCoyle, 2021, Sørensen et al, 2020;Whitehead and Bhorat, 2021).…”

“…Several recent studies have underlined the positive influence of services export diversification on economic growth (e.g., Gnangnon, 2021a) or the positive effect of services export sophistication on economic growth (e.g., Anand et al, 2012;Mishra et al, 2011;Stojkoski et al, 2016). On the other side, other studies have pointed out that economic complexity is a strong predictor of economic growth (e.g., Hausmann and Hidalgo, 2009;Hidalgo, 2021;Koch, 2021;Poncet and Starosta de Waldemar, 2013;Stojkoski et al, 2016) and more generally promotes significantly economic development (e.g., Caldarelli et al, 2012;Hidalgo et al, 2007).…”

Export Diversification and Financial Openness

“…Regarding the relationship between services export diversification and economic growth performance, Gnangnon (2020aGnangnon ( , 2020b have shown that in developing countries, services export diversification promotes economic growth, while in high income countries, it is rather services export specialization that enhances economic growth. In related studies, Anand et al 2012, Mishra et al (2011) and Stojkoski et al (2016) have uncovered empirically that services export sophistication is positively associated with economic growth, and provides countries, including developing ones with a promising avenue for promoting economic growth in the context where the traditional industrialization path contributes less to ignite growth.…”

“…It intends to contribute to the existing literature on the macroeconomic determinants of financial openness by investigating whether 2 Studies include for example Grilli and Milesi-Ferreti (1995); Gnangnon (2019); Joyce and Noy (2008); Karcher and Steinberg (2013); Obstfeld (1998); Quinn and Inclan (1997); Steinberg et al (2018); Vo and Daly (2007); and Von Furstenberg (1998). 3 Studies on this matter include for example, Anand et al (2012); Gnangnon (2020a;2020b); Haddad et al (2013); Hausmann et al (2007); Kramarz et al (2020); McIntyre (2018); Mishra et al (2011); Redding (1999); Stojkoski et al (2016) and Vannoorenberghe et al (2016). export diversification matters for financial openness.…”

Effect of Poverty on Services Export Concentration in Developing Countries

“…These goals purport to promote sustainable development in all countries (see page 14 of the United Nations document A/RES/70/1, titled "Transforming our world: the 2030 Agenda for Sustainable Development"). Second, services export diversification and services export sophistication can be associated with higher economic growth (e.g., Anand et al, 2012;Gnangnon, 2020d;Mishra et al, 2011;Stojkoski et al, 2016). Anand et al (2012), Mishra et al (2011) and Stojkoski et al (2016) have suggested that services export sophistication represents an additional means for developing countries to spur economic growth.…”