Assessing the Impact of Innovation and Economic Factors on Export Concentration and Diversification in Developing Countries

This research investigates the factors that affect export structure—as indicated by export concentration and export diversification—in 118 developing economies from 1995 to 2021. Dynamic system generalised method of moments and Driscoll–Kraay standard error tools are employed in this study to analyse how these five main independent variables, utilised together, provide data concerning the following: resident patent applications, non-resident patent applications (PANR), government effectiveness, gross domestic product growth and the extent of globalisation. In contrast, the results show that domestic innovation is associated with decreased export concentration and increased export diversification through the use of resident patent applications as well as effective governance, economic growth and the extent of globalisation. Conversely, reliance on non-resident patents is associated with increased export concentration and reduced export diversification, suggesting that developing economies may face challenges in improving their export baskets due to their dependence on PANR for new technologies. In sum, these results suggest that all three of the independent variables—governmental effectiveness, economic growth and degree of global integration—contribute positively towards improving the export structure of developing countries; however, innovation through native experiences will have the largest impact on achieving additional and sustainable export diversification for developing countries. JEL Codes: F1, F14, O30, C33