Services diversification and economic growth

The present article investigates the effect of services export diversification on economic growth by relying on a sample of 131 countries over the period 1985-2014. The empirical results, based on the two-step system Generalized Methods of Moments (GMM), have suggested that services export diversification enhances economic growth in developing countries, whereas in High Income Countries (HICs), services export specialization promotes economic growth. Furthermore, services export diversification influences positively economic growth in countries that experience a higher services exports growth, with the magnitude of this positive effect increasing as the growth rate of services exports rises. Finally, services export diversification tends to be positively associated with economic growth for lower levels of trade openness. However, as countries enjoy greater trade openness, they tend to enhance their services export specialization so as to promote economic growth. One key message conveyed by the analysis is the importance of services export diversification (or concentration) for economic growth, including when countries further open up to international trade.