We consider the effect of export sophistication on economic performance using regional variations within a single country (China) over the period 1997-2009. We confirm Hausmann, Hwang and Rodrik (2007)'s prediction that regions that specialize in more sophisticated goods subsequently grow faster. We find that at the province and prefecture level, there is substantial variation in export sophistication controlling for the level of development, and that this difference in turn matters for growth. Our results suggest that these gains are limited to ordinary export activities undertaken by domestic firms. No direct gains appear to derive from processing trade activities and from foreign firms even though they are the main contributors to the global upgrading of China's exports. This finding suggests that the contribution of assembly trade and foreign entities must be distinguished when one wants to measure the true improvement in the country's technology level and its contribution to economic growth.
