1 Education , Export Diversification , and Path - Dependent Development

Recent studies of product-level export data demonstrate that an economy with an export-mix that is more diverse and sophisticated tends to experience faster growth, lower inequality and greater resilience to shocks. These studies also argue that development through export diversification is pathdependent: since the production of different products both requires and imbues economies with different capabilities, it is easier for a country to transition to products that are similar (i.e. that require similar capabilities) to those it already produces. This paper uses a wide panel of 111 countries and 1,240 products from 1995-2010 to ask whether education played an important role in reducing this path dependence, and if so, how. We find that the main way in which education facilitates export diversification is by facilitating more rapid movement from existing products into proximate ones. In contrast, there is relatively little evidence to support the prediction that education permits countries to teleport through product space directly to sophisticated products. These results imply that a country wishing to parlay its human capital stock into success in exporting new, unfamiliar products will need to carefully determine the complementary policies required by the “stepping stone” industries that it will have to develop en-route. The benefits of education for overcoming path-dependency are strongest in moderately sophisticated products: there is little path dependence in learning to produce the crudest products, and education cannot overcome path dependence in producing the most complex products. Quality primary and secondary education appear to be more important than college education. -----------------------------------------------------------------------------------------------------------------------------------------Disclaimer: This paper reflects the views of the authors, and not those of the Asian Development Bank, its board, or its member countries. Acknowledgement: We are grateful for Daniel Stock for assistance and advice on the data.