Structural transformation and quality ladders: Evidence from the new Theil's decomposition.

• I decompose export concentration along the extensive, quantity and quality margins. • Export restructuring has more impact than widening product mix or quality upgrading. • Successful restructuring accounts for world demand and potential to improve quality. • Low-income countries progress along the extensive and quality margins more rapidly. • At a high level of economic development, export re-specialization is not pronounced. This paper examines structural transformation along the development path by linking export concentration to economic development in a cross-country setting. I explore the role of widening product mix, export restructuring and quality upgrading for the patterns of export concentration measured by the weighted Theil index. This study contributes to the literature by developing the decomposition of this index into the extensive, quantitative and qualitative components. I find that structural transformation is primarily driven by export restructuring according to the world demand and towards the products with higher potential to improve quality. Controlling for the world demand, re-specialization is not pronounced at a high level of economic development, while the ability to upgrade quality becomes increasingly important for the higher-middle-income and high-income countries. [ABSTRACT FROM AUTHOR]