Neighbors and the Evolution of the Comparative Advantage of Nations: Evidence of International Knowledge Diffusion?

CID Working Paper No. 235

Dany Bahar, Ricardo Hausmann, Cesar Hidalgo
April 2012 (Updated July 2013)

The literature on knowledge diffusion shows that it decays strongly with distance. In this paper we document that the probability that a product is added to a country’s export basket is, on average, 65% larger if a neighboring country is a successful exporter of that same product. For existing products, having a neighbor with comparative advantage in them is associated with a growth of exports that is higher by 1.5 percent per annum. While these results could be driven by a common third factor that escapes our controls, they are what would be expected from the localized character of knowledge diffusion.

JEL codes: O31, O33, F10, F62, F63

Keywords: export similarity, innovation, productivity, knowledge, technology, diffusion, spillovers

Affiliated Research Program: Growth Lab