TY  - JOUR
AU  - Sutton,John
AU  - Trefler,Daniel
TI  - Deductions from the Export Basket: Capabilities, Wealth and Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16834
PY  - 2011
Y2  - February 2011
UR  - http://www.nber.org/papers/w16834
L1  - http://www.nber.org/papers/w16834.pdf
N1  - Author contact info:
John Sutton
London School of Economics
Houghton Street
London WC2A 2AE, UK
E-Mail: j.sutton@lse.ac.uk

Daniel Trefler
Rotman School of Management
University of Toronto
105 St. George Street
Toronto, ON M5S 3E6
CANADA
Tel: 416/946-7945
Fax: 416/978-5433
E-Mail: dtrefler@rotman.utoronto.ca
AB  - This paper re-explores the relation between a country's level of wealth and the mix of products it exports. We argue that both are simultaneously determined by countries' capabilities i.e. by countries' productivity and quality levels for each good. Our theoretical setup has two features. (1) Some goods have fewer high-quality producers/countries than others i.e. there is Ricardian comparative advantage. (2) Imperfect competition allows high- and low-quality producers to coexist, which we refer to as 'product ranges'. These two features generate a very particular non-monotonic, general equilibrium relationship between a country's export mix and its wage (GDP per capita). We show that this non-monotonicity permeates the 1980-2005 international data on trade and GDP per capita. Our setup also explains two other facets of the data: (1) Product ranges are huge and (2) for the poorest third of countries, changes in export mix substantially over-predict growth in GDP per capita. This suggests that the main challenge for low-income countries is to raise quality and productivity in their existing product lines.
ER  -