Trade Policy Space and Production Diversification in Developed and Developing Countries

Abstract

This paper examines the effect of trade policy space on production diversification, and particularly on industrialization. We define trade policy space as the extent of constraints imposed by non-trade obligations, and possibly bilateral and regional trade agreements on the current trade policy stance. Thus, the lower the extent of these constraints, the higher is the available trade policy space to promote production diversification and particularly on industrialization. The empirical analysis uses a sample of 159 countries, over the period 1995–2015, and shows that trade policy space is conducive to production diversification and industrialization, although the effect could vary across sub-samples.