Education and the evolution of comparative advantage

Abstract

We analyze the evolution of comparative advantage in 1,240 products from 49 low- and middle-income countries between 1995 and 2015. We show that countries with high education levels were more successful in developing comparative advantage in products unrelated to those they already exported. This effect is strongest for non-core products. In contrast, these countries did not develop comparative advantage in products that were intrinsically complex or education-intensive. These results are robust to corrections for specification errors, for institutional, infrastructure, and FDI-related factors, for regional specialization patterns, for key shifts in global trade rules, and for each economy's degree of industrial dynamism prior to 1995. These findings suggest that the key role of education when seeking to develop new industries is to help a country learn to manage unfamiliar challenges, and so overcome path dependence.