Patterns of Diversification and Specialization in International Trade

Changes in the composition of production refer not only to the structure of production but also the composition of exports. The structure of exports is the topic of this chapter. The point of departure for the chapter is the well-known U-curve pattern of specialization proposed by Imbs & Wacziarg (2003). The chapter is informed by technology gap theories of catch-up. Due to international technology transfer laggard economies can start catching up. In this process they will tend to diversify. The main aim of the chapter is to test whether the U-curve hypothesis is valid. It makes an interesting distinction between specialization within product groups and specialization between product groups. For this, the chapter develops a new measure of entropy, which decomposes within and between group degrees of specialization. A rising trend for total entropy is observed over the whole product range. The curve tends to flatten at higher income levels, but it does not decline suggesting that there is no U-curve.