The Role of Productive and Technological Capabilities on Export Dynamics in Developing Countries

Productive and technological capabilities matter. The more conventional strands of the literature have emphasized them as major engines of export, growth and development. But how they matter is less clear, and many open questions remain on how capabilities influence export dynamics at microeconomic level. This paper empirically investigates their role on export dynamics in 40 developing countries between 2002 and 2012. In doing so, the paper exploits a country-sector-year database containing exporter-level statistical information. The empirical analysis shows that, within sectors, countries with higher productive capacities have more exporters, and the exporters are larger and charge higher prices for their products, even after controlling for level of development, size of the economy, commodity-dependency and other variables. The results also confirm a positive relationship between technological capabilities and diversification: within sectors, exporters in countries with stronger capabilities tend to export a higher number of products and to more destination markets. Finally, technological capabilities play a specific role in high-technology sectors, such as electronics, electrical machinery and equipment and pharmaceuticals. In these sectors, exporters from countries with higher R&D investments are more diversified in terms of destination markets. Thus, the paper shows that, even comparing exporters’ behaviour only among developing countries, stronger productive and technological capabilities are significantly related to the “extensive” and “intensive” margin of exports, diversification across products and destinations, and product quality; all crucial aspects of developing countries’ insertion in global markets. Overall, the paper underscores the role of capabilities not only on developing countries’ macroeconomic resilience to trade shocks, but also on their medium-term development prospects.