Large economies export more in absolute terms than do small economies. We use data on shipments by 126 exporting countries to 59 importing countries in 5,000 product categories to answer the question: How? Do big economies export larger quantities of each good (the intensive margin), a wider set of goods (the extensive margin), or higher-quality goods? We find that the extensive margin accounts for around 60 percent of the greater exports of larger economies. Within categories, richer countries export higher quantities at modestly higher prices. We compare these findings to some workhorse trade models. Models with Armington national product differentiation have no extensive margin, and incorrectly predict lower prices for the exports of larger economies. Models with Krugman firm-level product differentiation do feature a prominent extensive margin, but overpredict the rate at which variety responds to exporter size. Models with quality differentiation, meanwhile, can match the price facts. Finally, models with fixed costs of exporting to a given market might explain the tendency of larger economies to export a given product to more countries.

/pdf/the-variety-and-quality-of-a-nation-s-exports-d30ayb5k1z.pdf

The Variety and Quality of a Nation's Exports

Are natural resources a “curse” or a “blessing”? The empirical evidence suggests either outcome is possible. The paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources. These include that a resource bonanza induces appreciation of the real exchange rate, deindustrialization and bad growth prospects, and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law, corruption, presidential democracies, and underdeveloped financial systems. Another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad, induces corruption especially in non-democratic countries, and keeps in place bad policies. Finally, resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets. The survey also offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies.

Natural Resources: Curse or Blessing?

I show that undervaluation of the currency (a high real exchange rate) stimulates economic growth. This is true particularly for developing countries. This finding is robust to using different measures of the real exchange rate and different estimation techniques. I also provide some evidence that the operative channel is the size of the tradable sector (especially industry). These results suggest that tradables suffer disproportionately from the government or market failures that keep poor countries from converging toward countries with higher incomes. I present two categories of explanations for why this may be so, the first focusing on institutional weaknesses, and the second on product-market failures. A formal model elucidates the linkages between the real exchange rate and the rate of economic growth.

/pdf/the-real-exchange-rate-and-economic-growth-52ml5nvocw.pdf

The Real Exchange Rate and Economic Growth

The 2013 Human Development Report – "The Rise of the South: Human Progress in a Diverse World" – examines the profound shift in global dynamics driven by the fast-rising new powers of the developing world and its long-term implications for human developmentChina has already overtaken Japan as the world's second biggest economy while lifting hundreds of millions of its people out of poverty India is reshaping its future with new entrepreneurial creativity and social policy innovation Brazil is lifting its living standards through expanding international relationships and antipoverty programs that are emulated worldwideBut the "Rise of the South" analyzed in the Report is a much larger phenomenon: Turkey, Mexico, Thailand, South Africa, Indonesia and many other developing nations are also becoming leading actors on the world stage

Human Development Report 2013. The Rise of the South: Human Progress in a Diverse World

This paper proposes a new model of the link between expanding trade and rising wage inequality in developing countries, and investigates its causal implications in a newly constructed panel of Mexican manufacturing establishments. In a theoretical setting with heterogeneous rms and quality dierentiation, only the most productive rms in a developing country like Mexico enter the export market, and they produce a better-quality good for export than for the domestic market in order to appeal to richer developed-country consumers. Producing high-quality goods requires paying high wages both to white-collar and to blue-collar { but especially to white-collar { employees. An increase in the incentive for developing-country producers to export generates dierential quality upgrading within industries, as more-productive rms increase exports and produce a greater share of high-quality goods, while less-productive rms remain focused on the domestic market. This process raises wage inequality both between rms and within the rms that upgrade. The empirical part of the paper uses a major exchange rate shock { the Mexican peso crisis of late 1994 { to test this causal mechanism. I nd robust evidence that during the years of the crisis initially more-productive plants increased both white-collar and blue-collar wages and increased the relative wage of white-collar workers as compared to initially less-productive plants. This pattern is absent in the periods before or after the crisis years. The results thus provide strong support for the hypothesis that dierential quality upgrading induced by the exchange rate shock contributed to the increase in wage inequality in Mexico in the mid-1990s.

/pdf/trade-quality-upgrading-and-wage-inequality-in-the-mexican-2pqy4boapb.pdf

Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector: Theory and Evidence from an Exchange-Rate Shock

When local cost discovery generates knowledge spillovers, specialization patterns become partly indeterminate and the mix of goods that a country produces may have important implications for economic growth. We demonstrate this proposition formally and adduce some empirical support for it. We construct an index of the "income level of a country's exports," document its properties, and show that it predicts subsequent economic growth.

What You Export Matters

When local cost discovery generates knowledge spillovers, specialization patterns become partly indeterminate and the mix of goods that a country produces may have important implications for economic growth. We demonstrate this propo- sition formally and adduce some empirical support for it. We construct an index of the "income level of a country's exports," document its properties, and show that it predicts subsequent economic growth.

/pdf/what-you-export-matters-3kpicuz4q0.pdf

What you export matters

When local cost discovery generates knowledge spillovers, specialization patterns become partly indeterminate and the mix of goods that a country produces may have important implications for economic growth. We demonstrate this proposition formally and adduce some empirical support for it. We construct an index of the 'income level of a country's exports,' document its properties, and show that it predicts subsequent economic growth.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID896243_code379855.pdf?abstractid=896243&mirid=1&type=2

https://chrisblattman.com/documents/research/2007.Winners&Losers.JDE.pdf

Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870–1939

Most countries in the periphery specialized in the export of just a handful of primary products for most of their history. Some of these commodities have been more volatile than others, and those with more volatile prices have grown slowly relative both to the industrial leaders and to other primary product exporters. This fact helps explain the growth puzzle noted by Easterly, Kremer, Pritchett and Summers more than a decade ago: that the contending fundamental determinants of growth - institutions, geography and culture - exhibit far more persistence than do the growth rates they are supposed to explain. Using a new panel database for 35 countries, this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939. Volatility was much more important for accumulation and growth than was secular change. Additionally, both effects were asymmetric between Core and Periphery, findings that speak directly to the terms of trade debates that have raged since Prebisch and Singer wrote more than 50 years ago. The paper also investigates one channel of impact, and finds that foreign capital inflows declined steeply where commodity prices were volatile.

/pdf/the-impact-of-the-terms-of-trade-on-economic-development-in-4pkxo2yplb.pdf

Jason Hwang

Papers

What You Export Matters

What you export matters

What You Export Matters

Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870–1939

The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change