Vertical and Horizontal Dynamics in Export Unit Values

12  June 2017    3:00 pm

Konstantin Wacker, University of Mainz (JGU), Germany

In cooperation with:
Research Centre International Economics (FIW) 

Venue

wiiw, Rahlgasse 3, 1060 Vienna

Description

In this paper, we look at patterns of vertical (‘within-product’) vs. horizontal (‘between’ products) export specialisation using unit values on the 6-digit level.

We start by documenting widespread convergence in products’ unit values as a proxy for export quality. The robustness of this result raises the question why countries do not converge in income levels. We then document that products usually exported by developing countries have shorter quality ladders. This limits the scope for vertical specialization and catch-up, and suggests that vertical specialization can only be one aspect of countries’ upgrading strategy that has to be complemented by horizontal upgrading across goods and sectors.

Konstantin Wacker

Against this background, we analyse countries’ vertical vs. horizontal specialization dynamics from the mid-1990s until 2007. Our main contribution in this regard is a methodological decomposition of countries' aggregate export unit values into vertical upgrading and horizontal sector dynamics, reflecting that countries can either upgrade each product in their export portfolio, or they can increasingly move towards sectors with higher unit value perspectives. We then apply this decomposition to trends in aggregate unit values of 154 countries. Although both dimensions are important in countries’ dynamic export pattern, the latter seems to be quantitatively dominating, with entry and exit of products playing an important role as well.

Keywords: unit value, convergence, structural change in exports

JEL classification: F14, F43


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