How much have been the export products changed from homogeneous to differentiated? Evidence from China, Japan, and Korea

Many international trade theories and evidence suggest that trade in homogeneous and differentiated goods is different, and trade performance depends significantly on the extent of product differentiation. First this paper classifies the three countriesʹ export products using Rauchʹs [Rauch, J. (1999). Networks versus markets in international trade. Journal of International Economics, 48, 7–35] classification scheme. This paper suggests a sophisticated technique to obtain the extent of product differentiation in a countryʹs export, implied by Dixit and Stiglitz [Dixit, A., & Stiglitz, J. (1977). Monopolistic competition and optimum product variety. The American Economic Review, 67, 297–308] model in which the smaller is the elasticity of substitution between varieties the greater is the extent of product differentiation. This is an attempt to identify the extent of product differentiation in each countryʹs export basket by estimates of the elasticity of substitution. The estimated elasticities of substitution vary across countries. The most interesting empirical finding is that the Chinaʹs export structure has been rapidly shaped into differentiated products. However the extent of product differentiation in Japan and Koreaʹs exports has relatively less varied.