9.3.12

Export diversification

Using a large dataset for 79 countries covering the period 1962–2000, this study analyses the main determinants of export diversification (concentration). We explore the role of several factors and we use three different indicators of export concentration. We find robust evidence across specifications and indicators that trade openness induces higher specialisation. In contrast, financial development does not seem to help countries to diversify their exports. Looking at the effects of exchange rates, in some of the results, a negative effect of real exchange rate volatility on export diversification is detected, but no significant effects of exchange rate overvaluation. There is also evidence that human capital accumulation contributes positively to diversify exports and that increasing remoteness tends to reduce export diversification. We also explore the role of terms of trade shocks. Most of the results suggest an interesting interaction between this variable and human capital: improvements in the terms of trade tend to concentrate exports, but this effect is lower for those countries with higher levels of human capital. This evidence suggests that countries with higher education can take advantage of positive terms of trade shocks to increase export diversification.
That is the abstract of the new paper "Determinants of Export Diversification Around the World: 1962–2000" (it is published in The World Economy, 2012) by Agosin, Alvarez, and Bravo‐Ortega. See an earlier draft (2009) here

What else can help export diversification? A partial answer is in this paper by Dennis and Shepherd (2011). Foreign Direct Investment -FDI- also helps (which is intuitive) according to Tadessea and Shukralla (2013). See here an interesting paper of when and how diversification has occurred among firms in Brazil (Cirera, Marin, and Markwald 2011).

Beyond some critical levels export diversification matters more for growth, and exporting technology can be key (Adityaa and Acharyya 2011). See the case of Peru

The literature on this topic is actually very ample. 

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