Does Specialization Matter for Growth?

The question concerning the extent to which the growth performance of an economy is determined by its external relations is a controversial one. There are several approaches which stress the interaction between international factors and domestic growth performance. In the Keynesian tradition, Kaldor and Thirlwall have argued that exports and trade performance are the main determinants of growth. This paper takes different elements from these and other theoretical approaches, and combines them into a framework that stresses the importance of specialization for economic growth. The paper applies a data set on growth and trade in 11 manufacturing sectors, for the period 1965-1988, for the OECD area. The main novelty in the database is the assignment of 75 products in the trade data to the 11 industrial sectors. The relationship between growth and specialization has been tested by running a regression with the sectoral growth of value added as the dependent variable, and several variables, including some measuring specialization as well as other factors, as the independent variables. The regression results presented seem to indicate that specialization does indeed matter for economic growth. However, this impact seems to be gradually wearing off during the 1980s, as is the case for other factors included in the regression analysis.