The Surprising Size and Instability of Hyper-Specialization in Exports

DRI Working Paper
by Diego Daruich, William Easterly and Ariell Reshef

We study the hyper-specialization of exporting countries, both by narrow product category (4-digit level) and by destination. (1) Specializations are surprisingly unstable. Export ranks are not persistent, and new products and destinations replace old ones. Measurement error is unlikely to be an important determinant of this pattern in the data. (2) Source country effects do not explain much of this instability. Only 20% of the variation in export growth can be explained by variation in comparative advantage (source-by-product), while another 20% of the variation in export growth can be explained by variation in bilateral forces (source-by-destination). The high share of product, destination, and product-by-destination effects diminishes the emphasis on the nations where the exports originate. The high share of idiosyncratic variance (residual at the source-product-destination level of variation) of about 30%, also indicates the difficulty to predict export success using source country characteristics.  These findings suggest that the lion’s share of export performance depends on forces that are outside the realm of national export promotion and industrial policies.