Determinants of Export Sophistication: An Investigation for Selected Developed and Developing Countries Using Second-Generation Panel Data Analyses

Abstract

The aim of this paper is to determine potential factors that may influence export sophistication index for both developed and developing countries. The present study calculated export sophistication values for selected developed and developing countries using a specific index (EXPY) proposed by Hausmann, Hwang and Rodrik (2007). Second-generation panel data analyses were subsequently performed to examine determinants of export sophistication index and whether selected developing countries are able to converge to developed countries. Empirical findings reveal that there exists a positive relationship between export sophistication index and foreign direct investments, total domestic savings, educational and research and development (R&D) expenditures. Particularly, the estimation results of the present study also indicate that two developing countries, namely, Malaysia and Romania are able to converge to developed countries in terms exporting performance, whereas Turkey and Bulgaria cannot achieve to converge to developed countries. As a result, developing countries should concentrate on improving their export sophistication index to converge to developed countries.