Does exports to developed countries stimulate export sophistication? Evidence from ASEAN 5 countries
Aditya Rangga Yogatama (a*)
a) Center for Strategic Issues Management, the Ministry of Trade
Jl. M.I. Ridwan Rais No. 5, Central Jakarta 10110, Indonesia
* ytc.yoga[at]gmail.com
Abstract
A countrys sophistication of production and exports is important for economic transformation. Sophisticated production is generally associated with higher productivity, which in turn can lead to higher income and improved welfare. Skills improvement is a key channel through which export can affect production, export sophistication, and income. This paper aims to examine the effect of exports to developed countries on the export sophistication of ASEAN 5 countries and relatively shows Indonesias position towards other ASEAN 5 countries in terms of export sophistication. The method we used is fixed effect panel data model by using the UNCTAD advanced country diversification index as dependent variable, which measures the similarity of exports with exports of developed countries. Empirical results show that exports to developed countries are associated with higher export sophistication. The export sophistication of Indonesia is relatively low compared to other ASEAN 5 countries, which is still below Malaysia, Thailand, and the Philippines. This paper suggests that the Indonesian government needs to encourage Indonesian exporters to increase exports to developed countries in order to enhance their productivity and product quality, which in turn will increase Indonesias exports.
Keywords: Destination of exports; Export sophistication; ASEAN-5
Topic: Trade policies strategic Responses