Empirical Evidence from South Africa

This paper provides empirical evidence on the relationship between exports, and in particular export diversity, and regional growth in a developing country context. Using export data for 19 sectors from 354 subnational (magisterial) districts of South Africa, we construct various measures of subnational export diversity. We find that it is not only how much that is exported, but also important is what is exported. Regions with less specialization and more diversified exports generally experienced higher economic growth rates and contributed much more to overall exports from South Africa. We also find that distance (and thus transport costs) may matter for export diversity. Estimating a cubic-spline density function for the various measures of export diversity we find that export diversity declines as the distance from a port (export hub) increases. Most magisterial districts with high export diversity values are located within 100 km of the nearest port. Furthermore, comparing the cubic-spline density functions for 2004 with that of 1996 shows that distance (transport costs) have become more important (under greater openness), with fewer diverse magisterial districts located further away from ports in 2004 than in 1996. One possible explanation for this changing pattern of export diversity may be due to the impact of greater foreign direct investment in South Africa since 1996.