Export specialization and economic growth

Traditional economic wisdom claims that - while global economic integration is beneficial for economic performance - a country's trade specialization pattern has no impact on its economic performance. In this paper, we seek to cast doubt on this aspect of mainstream economics using a very traditional approach. We introduce a simple endogenous growth model that shows how governments can stimulate economic growth by implementing policies that successfully create competitive advantages in favourable sectors. According to new growth theory, favourable sectors inhibit technological spill-over effects to the non-tradable sector. The model is supported by the data. Using a standard augmented aggregate production function we run a series of growth regressions including technological change and a proxy for trade specialization. Our results indicate that contrary to conventional wisdom export specialization matters: sectors are not indistinguishable in their impact on economic performance. The paper concludes with a broader discussion of policy implications.