Export sophistication increases income in sub-Saharan Africa: evidence from 1981–2000

Previous studies on export diversification show that sub-Saharan African countries are at the lowest end in export diversification in the world. Recent literature also indicates the importance of export sophistication on economic development. This raises an important question whether export sophistication contributes to the income improvement in sub-Saharan African. The paper examines the causal effect of export sophistication on income in sub-Saharan Africa with panel data. By employing instrumental variables techniques and heteroskedasticity identification strategy that correct for endogeneity bias, the findings show that within-country variations in export sophistication lead to income growth. That is, a 1 % point increase in the export sophistication index is associated with an increase in GDP per capita of approximately 0.08 % points in the long run.