ECONOMIC DEVELOPMENT AND THE MARGINS OF TRADE: ARE THE LEAST DEVELOPED COUNTRIES DIFFERENT?

November 6, 2020 - Jesse Mora, Michael Olabisi<olabisim@msu.edu>

Mora, J. and Olabisi, M. (2020), Economic Development and the Margins of Trade: Are the Least Developed Countries Different? Econ Inq.

Abstract

We show that for the least‐developed countries (LDCs), the number of exporters is relatively more important than the average exporter size for explaining both export growth and economic development. To guide our analysis, we develop a theoretical model that links the impact of productivity shocks to institutional differences between country groups. Empirically, we find a positive relationship between the extensive margin and economic development for LDCs, but not for middle‐income and high‐income economies; and, on the intensive margin, the relationship is strongest for high‐income countries. The findings imply that the drivers of export growth and economic development for the poorest countries differ significantly from growth drivers in other country groups.( JEL F12, F43, O47)

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