The approach to international trade has shifted from measuring the face value of a product to considering where production occurs. This change affects how the sophistication of a country's export basket is assessed. A recent paper utilizes the latest OECD Trade in Value Added database to re-evaluate cross-country export sophistication, as defined by Hausmann et al. (2007). The findings indicate that the gap between high-income and low-income countries' export sophistication is wider when viewed from a value-added perspective.
Before the global financial crisis (GFC), the gap in export sophistication between high-income and low-income countries was narrowing. However, post-GFC, high-income countries have seen their export sophistication grow faster than that of low-income countries. A decomposition analysis attributes these trends to the basket effect, which measures how changes in a country’s own export basket affect its overall export sophistication.
The paper also concludes that higher export sophistication positively impacts future economic growth, especially when measured from a value-added perspective. In the early 2000s, South Africa performed relatively well in terms of value-added export sophistication but began to fall behind its peers after the GFC due to the basket effect hampering growth in this area. Despite this, South Africa's key strategic industries such as motor vehicles and chemicals remain relatively sophisticated.