Recent research suggests that export diversification, the introduction of new export products, and the level of sophistication of exports might be related to the pace of economic growth across countries and over time. Thus, Khan (2004) finds that the introduction of new products affects economic growth and is associated with increases in the rate of capital accumulation across countries. Lederman and Maloney (2006) present econometric evidence suggesting that export diversification, measured according to the Herfindahl index of export-revenue concentration, is positively correlated with subsequent growth in GDP per capita in a broad sample of countries during 1975–2000. Imbs and Wacziarg (2003) were perhaps the first to note that the process of development is associated with economic diversification rather than specialization in terms of both production and employment concentration across sectors of economic activity. More recently, Klinger and Lederman (2006) observe that the introduction of new export products (or “export discoveries”) and export diversification according to the Herfindahl index (measured at the 4-digit level of the Harmonized Commodity Description and Coding System) follow a common path during the process of development. In other words, at the start, poor countries possess highly concentrated export structures and rely on a few export products, but they introduce new export products as their export structures undergo the process of diversification during economic development (see figures 27 and 28).

<!-- Start of picture text --> Figure 27 Predicted versus Actual Export-Discovery Figure 28 Diversification and Innovation: Where<br>Counts, 1994–2003 Does East Asia Stand?<br>120 Indonesia<br>110<br>Diversification Discoveries Patents<br>100<br>India<br>90<br>80<br>70<br>60<br>50<br>Malaysia<br>40<br>S. Korea<br>30<br>20<br>China<br>10<br>0<br>GDP per Capita in 1994 (PPP-adjusted; 2000 U.S. Dollars) 0 5000 10000 15000 20000 25000 30000 35000<br>Observed Discoveries Predicted Discoveries Prediction with Industries 1995 GDP Per Capita (PPP)<br>Source: Klinger and Lederman 2006. Source: Klinger and Lederman 2006.<br>Counts of Export Discoveries<br>P re dic te d V a lue / S a m ple M a x im um<br>560.4 821.3 1154.2 1525.0 1565.4 2267.1 2702.1 3024.9 3214.2 3718.9 4389.4 4932.8 5369.9 5600.6 6115.7 6341.3 6929.7 7179.1 7524.7 7796.4 7992.8 9441.1 11240.0 12629.1 13404.4 14360.5 16934.3 18550.2 19444.5 21389.8 22892.6 23159.3 23483.7 24081.0 24666.5 27592.2 30419.5<br><!-- End of picture text --> A discovery is defined as a good that was not exported during 1994–96, but exported at a value of more than US$10,000 in 2002 and 2003. The information is based on disaggregated export data at the 6-digit level of the Harmonized Commodity Description and Coding System.<sup>19</sup> Figure 27 shows the predicted and the observed number of export discoveries during 1994–2003 as a function of the level of development (GDP per capita) in a sample of 73 countries. The figure shows two different predictions. One is derived from a negative binomial estimation that controls only for GDP per capita and its squared term, while the other also controls for sector-specific effects, where Leamer’s (1984) 10 commodity groups encompass the corresponding sectors. This latter control might have been important if the introduction of new export products in developing countries were the result of structural transformation, whereby growing economies change their patterns of production due to changes in factor endowments brought about by capital accumulation. Since both curves are similar, the data suggest that structural transformation is not an important part of the story. Economies in East Asia appear both above and below their predicted number of new exports. Indonesia seems to have performed better during the period under examination (1994–2003) than other East Asian economies, including China, Korea, and Malaysia. In fact, the latter three performed below the level predicted by their GDP per capita, while Indonesia— surprisingly—overperformed.

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