IMPACT OF PRODUCTIVE CAPACITIES ON SERVICE EXPORT SOPHISTICATION: EVIDENCE FROM DEVELOPING COUNTRIES

Abstract

This study examines the impact of productive capacities on the sophistication of service exports in 103 developing countries from 2005 to 2022. By employing the fixed effects estimator, the empirical findings reveal that improvements in the overall productive capacities index are positively associated with enhanced service export sophistication. Notably, this study discovers that among the components of the productive capacities index, human capital is the most potent catalyst. Other elements, including natural capital, information and communication technology, and transport, also play a significant, though slightly lesser role. These results offer important implications, suggesting that governments and policymakers in developing countries should prioritize strategic investments aiming to strengthen
productive capacities. Specifically, focusing on improving human capital and harnessing natural capital is crucial for fostering sophisticated service exports. Besides, implementing policies to enhance information and communication technology and transport infrastructure development is also necessary to bolster the sophistication of service exports.