Institutions Rule in Export Diversity

We used the data of 133 countries to explore the determinants of export diversity among candidate variables that are clearly exogenous or endogenous but with a well-established instrument. These candidates include geography, resource abundance, and institutional quality. Our results suggest that institutional quality is important in determining export diversity, and a country with better institutions has a more diversified export structure. Once institutional quality is controlled for and instrumented with European settler mortality, variables such as geography and resource abundance, which significantly determine export diversity in the baseline regression, are no longer significant. The results are still robust even using alternative measures of institutional quality. They also indicate that the mechanism whereby institutions largely determine export diversity has been presented under the guise of natural resource abundance and geography. Therefore, to some extent, the “natural resource curse” is not a curse, but simply two sides of the same coin.