Export Take-offs and Acceleration: Unpacking Cross-sector Linkages in the Evolution of Comparative Advantage
Dany Bahar, Samuel Rosenow, Ernesto Stein, Rodrigo Wagner
Key Findings
- Customer linkages are the most robust predictor: a one standard deviation increase in upstream linkage density raises the probability of export take-off by more than sixfold (from a 0.6% baseline)
- Technology linkages (measured by patent citation patterns) also predict take-offs, with a one standard deviation increase making take-offs nearly ten times more likely
- Labor market linkages and supplier (forward) linkages show no robust relationship with new export emergence—contrary to common intuitions about 'adding value' downstream
- The customer linkage effect is driven entirely by developing countries, consistent with Hirschman's hypothesis that backward linkages matter most where markets are incomplete
- For developed countries, supplier linkages matter for growth of existing exports but not for the emergence of new sectors—suggesting fundamentally different diversification dynamics
About This Research
How do countries develop new export industries? While existing research shows that new economic activities tend to emerge near related incumbent industries, the specific channels driving this process remain unclear. This paper runs a 'horse race' among the classic Marshallian linkages—input-output relations, shared technology, and labor pooling—to understand which channels matter most for export diversification.
Using trade data for 114 countries across two decades (1990-2010), we measure how the density of different cross-sector linkages predicts both 'take-offs' (countries gaining comparative advantage in entirely new export sectors) and growth acceleration in existing exports. Our most striking finding supports Albert Hirschman's 60-year-old hypothesis: customer (backward) linkages matter most. Countries are far more likely to develop new export capabilities in sectors that supply inputs to their existing competitive industries.
The intuition is that downstream customers provide both market demand and know-how to upstream suppliers. A garment exporter, for example, creates incentives and knowledge spillovers that help local fabric producers become competitive. This customer-driven mechanism is particularly strong in developing countries, where market incompleteness makes the presence of local buyers crucial for reducing uncertainty and enabling investment in new sectors.
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