We show that gross domestic product (GDP) per capita and population are strong determinants of export sophistication. From this point of view, our finding is consistent with the findings of Hausmann et al. (2007). The difference is that for the dynamic panel data model, the impact of GDP per capita and population on export sophistication is much higher.
Further, human capital is not a strong determinant for export sophistication. Institutional quality can be considered as a determinant for export sophistication both in low and high institutional quality countries, albeit its impact is negative. Finally, the territorial size of the countries has a negative impact on export sophistication, which means that small countries could more easily diversify production and exports than larger countries.
Finally, we added to the export sophistication model a lagged value of the dependent variable and show a strong persistence of the behavior of export sophistication. This is a sign that there exists not only path dependence in aggregate export activities (documented by Egger and Pfaffermayr, 2011) but also in terms of export sophistication. Further, strong persistence is also likely the reason for the absence of structural breaks in export sophistication for a large sample of countries, which is in line with empirical evidence that during the global financial crisis, the qualitative structure of exports remained unchanged and relatively stable.
Our results show that when we apply the panel data over a different period and different country set the findings of Hausmann et al. (2007) remain robust. Our findings using 2001–2015 panel data from the World Development Indicators (WDI) and Worldwide Governance Indicators (WGI) databases of the World Bank confirm that export path-dependency, GDP per capita, and the size of the economy exert significant and positive effects on export sophistication. On the other hand, we find that the impact of institutional quality has a negative and significant effect for countries both with low and high institutional quality. The high persistence of export sophistication forms a basis for the policy to strongly support export diversification that promotes not only productivity and sustainable economic growth but also resistance during economic downturns.