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The proportion of traded goods in world output has been rising steadily over the past several decades. When we look at specific products exported by the advanced industrial nations, increasing export specialization is evident. Such specialization cannot be explained by conventional notions of comparative advantage, nor entirely by the new trade theory based on economies of scale. Rather, a significant proportion must be due to technological or “absolute” advantages on the part of the specialized exporter, and a significant dimension of technological advantage is product-based and renewed through learning, giving rise to dynamic economies of variety as a source of export specialization. Industries characterized by such product-based learning and absolute advantage tend to have important developmental effects on their host economies because they earn quasi-rents. Such industries also tend to be organized …