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BREAKING INTO
NEW MARKETS
EMERGING LESSONS
FOR EXPORT
DIVERSIFICATION
EDITORS
RICHARD NEWFARMER
WILLIAM SHAW
PETER WALKENHORST

BREAKING
INTO
NEW MARKETS

BREAKING
INTO
NEW MARKETS
Emerging Lessons
for Export
Diversification
RICHARD NEWFARMER
WILLIAM SHAW
AND
PETER WALKENHORST
Editors
© 2009 The International Bank for Reconstruction and Development / The World Bank
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ISBN: 978-0-8213-7637-9
eISBN: 978-0-8213-7638-6
DOI: 10.1596/978-0-8213-7637-9
Cover:Design by Edelman Communications Inc. All photo credits: Curt Carnemark/World Bank.
Library of Congress Cataloging-in-Publication Data
Breaking into new markets : emerging lessons for export diversification / editors, Richard Newfarmer,
William Shaw, and Peter Walkenhorst.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-7637-9 — ISBN 978-0-8213-7638-6 (electronic)
1. Exports—Developing countries. 2. Foreign trade promotion—Developing countries.
3. Diversification in industry—Developing countries. I. Newfarmer, Richard S. II. Shaw, William,
1953- III. Walkenhorst, Peter.
HF1413.B725 2009
658.8'4091724—dc22
2009005195
CONTENTS
Foreword xi
Preface xiii
Contributors xv
Abbreviations xix
Executive Summary xxi
1 Breaking Into New Markets: Overview 1
Paul Brenton, Richard Newfarmer, William Shaw,
and Peter Walkenhorst
PART I DOES DIVERSIFICATION MATTER?
2 Trade Structure and Growth 39
Daniel Lederman and William F. Maloney
3 Export Diversification and Economic Growth 55
Heiko Hesse
4 Exposure to External Shocks and the Geographical
Diversification of Exports 81
Marc Bacchetta, Marion Jansen, Carolina Lennon,
and Roberta Piermartini
v
vi CONTENTS
5 Diversification, Innovation, and Imitation of the Global
Technological Frontier 101
Bailey Klinger and Daniel Lederman
6 Watching More than the Discovery Channel to
Diversify Exports 111
Paul Brenton and Richard Newfarmer
PART II POLICIES: LESSONS FROM EXPERIENCE
7 The Life and Death of Trade Flows: Understanding
the Survival Rates of Developing-Country
Exporters 127
Paul Brenton, Martha Denisse Pierola, and Erik von Uexküll
8 Promoting New Exports: Experience from the Middle East
and North Africa 145
Claudia Nassif
9 Exporting Services 161
Aaditya Mattoo
10 Tourism as a Strategy to Diversify Exports: Lessons
from Mauritius 183
Olivier Cattaneo
11 Fostering Productive Diversification through
Tourism 197
Iza Lejárraga and Peter Walkenhorst
12 Export Promotion Agencies: Strategies and Impacts 211
Daniel Lederman, Marcelo Olarreaga, and Lucy Payton
13 Special Economic Zones and Economic Diversification:
Some Evidence from South Asia 223
Aradhna Aggarwal, Mombert Hoppe, and Peter Walkenhorst
14 Infrastructure and Diversifying through Better
Products 237
Torfinn Harding
Index 255
CONTENTS vii
BOXES
1.1 Global Production and the iPod 9
8.1 Tunisia Export Market Access Fund: FAMEX 156
11.1 Exports of Butterfly Chrysalises from Costa Rica 199
FIGURES
1.1 New Products and Their Average Value: Nonparametric
Curves 4
1.2 Share of Export Growth Contributed by Intensive and
Extensive Margins, 1990–2005 5
1.3 Ten-Year Survival Rate of New Export Products Relative to
per Capita Income, 2004 13
1.4 Export Market Penetration Relative to per Capita
Income 15
1.5 Global Expansion of Services Exports, 1995–2006 17
3.1 Latin America and East Asia: Income Content of Exports
(EXPY)59
3.2 Diversification and Innovation 61
3.3 Evolution of Export Concentration and Real GDP per
Capita, Selected Countries 63
3.4 Export Concentration and GDP per Capita Growth,
1961–2000 65
4.1 Output Volatility by Income Group, 1965–2006 83
4.2 Average Level of Exposure to Country-Specific Shocks,
1966–2004 88
4.3 Exposure to Country-Specific Shocks for Singapore and
Brazil, 1966–2004 89
4.4 Terms-of-Trade Volatility by Income Group,
1985–2005 91
4.5 Geographical and Product Diversification by Income
Group, 1962–2004 92
5.1 Diversification and Innovation 105
5.2 Discovery and GDP by Leamer Commodity
Groups 106
6.1 Decomposition of Export Growth for 99 Developing
Countries, 1995–2004 113
6.2 Export Market Penetration and per Capita
Income 115
6B.1 Decomposition of Export Growth of 99 Developing
Countries: 1993–2002 122
7.1 Survival Rates of Export Flows, Selected Countries,
1985–2005 133
viii CONTENTS
7.2 Ten-Year Survival Rates of Export Flows, 2004 133
7.3 Survival Rates for Ecuadoran Exporters 134
8.1 Herfindahl-Hirschmann Index of Export Concentration,
1990 and 2005 147
9.1 The Pattern and Growth of Exports of Business
Services 163
9.2 Importance of Skill Intensity 165
9.3 Importance of Institutions 167
9.4 Shifting Revealed Comparative Advantage in Brazil and
India, 1990–2000 169
9.5 Service Exports per Capita 171
10.1 Exports in Mauritius, 1980–2004 185
10.2 Effects of Tourism: Direct and Indirect 190
11.1 Tourism: A Major Stimulant for New Product
Discovery 200
11.2 Correlation of Tourism Specialization with Export
Diversification 204
11.3 Determinants of Tourism Links 206
12.1 Correlation of Exports to Export Promotion
Budgets 215
12.2 Strategies or Goals of Export Promotion Agencies,
by Region 218
13.1 Exports of Footwear and Leather from Bangladesh,
1972–2003 231
13.2 Exports of Tents from Bangladesh, 1972–2003 232
13.3 Relative Importance of Different SEZ Elements 233
14.1 Index of Reforms in Financial and Infrastructure Service
Sectors and in Investment Climate for 10 Countries,
1989–2000 244
14.2 Effect of Infrastructure Reforms on Export Unit Values,
1989–2000 248
TABLES
2.1 Estimated Effect of Trade Structure on Growth,
1980–99 45
3.1 Estimation of Augmented Solow Growth Model by
System GMM 68
3A.1 Variable Definitions and Sources 74
3A.2 Additional Estimation of Augmented Solow Growth Model
by System GMM 75
4.1 Summary Statistics by Income Group, 1963–2002 93