ME  Vol.6 No.1 , January 2015
Reassessing Export Diversification Strategies: A Cross-Country Comparison
ABSTRACT
This article uses a sample of 44 countries to assess their export performance over the period 1988-2012, using the single-index model, a part of the modern portfolio theory. The article builds four clusters of countries classified by the dominance of exports of 1) fuel products, 2) manufactured products, 3) food items and agricultural products and 4) ores and minerals. All countries in the sample obtain a dominant majority of their export earnings from these broad categories of products. The results are that the export portfolios comprised of manufactured products have a superior performance than export portfolios comprised of non-manufactured products. In particular, from a risk-return perspective the export portfolio of manufactured products dominates the export portfolio of food items and agricultural products which in turn dominates the export portfolio of fuel products and of ores and minerals. This domination validates a priori belief that manufacturing goods and exports is the best strategy for development of exports of a country. An important caveat is that this rosy scenario is unlikely to last. The implications for countries and firms are also discussed.

Cite this paper
Gouvea, R. and Vora, G. (2015) Reassessing Export Diversification Strategies: A Cross-Country Comparison. Modern Economy, 6, 96-118. doi: 10.4236/me.2015.61009.
References
[1]   Beltramello, A., De Backer, K. and Moussiegt, L. (2012) The Export Performance of Countries within Global Value Chains (GVCs). OECD Science, Technology and Industry, Working Papers, OECD, Paris. http://www.ecb.europa.eu /home/pdf/research/compnet/Beltramello_DeBacker_Moussiegt_2012.pdf

[2]   Al-Marhubi, F. (2000) Export Diversification and Growth: An Empirical Investigation. Applied Economics Letters, 7, 559-562. http://dx.doi.org/10.1080/13504850050059005

[3]   Bhagwati, J.N. and Ramaswami, V.K. (1963) Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy. Journal of Political Economy, 71, 44-50. http://dx.doi.org/10.1086/258733

[4]   Songwe, V. and Winkler, D. (2012) Exports and Export Diversification in Sub-Saharan Africa: A Strategy for Post-Crisis Growth. Africa Growth Initiative, Working Paper 3, December. Brookings Institution, Washington DC.
http://www.brookings.edu/~/media/research/files/papers/2012/12/exports-africa-songwe/12-exports-africa-songwe.pdf

[5]   UNCTAD (2011) The State of Commodity Dependence 2012. UNCTAD Special Unit on Commodities, Geneva. http://unctadxiii.org/en/ SessionDocument/suc2011d8_en.pdf

[6]   UNDP (2011) Export Dependence and Export Concentration. Towards Human Resilience: Sustaining MDG Progress in an Age of Economic Uncertainty, UNDP Bureau for Development Policy, New York. http://www.undp.org/ content/dam/undp/library/Poverty%20Reduction/Towards_SustainingMDG_Web1005.pdf

[7]   Smith, A. (1776) An Inquiry into Nature and Causes of the Wealth of Nations. 1937 Edition, Modern Library, New York.

[8]   Ricardo, D. (1817) Principles of Political Economy and Taxation. John Murray, London.

[9]   DeRosa, A. (1992) Increasing Export Diversification in Commodity Exporting Countries: A Theoretical Analysis. IMF Staff Papers, 39, 572-595.
http://www.ifpri.org/sites/default/files/publications/derosa92_01.pdf

[10]   Currie, L. (1971) The Exchange Constraint on Development—A Partial Solution to the Problem. Economic Journal, 81, 886-903.

[11]   Michaely, M. (1962) Concentration in International Trade. North-Holland, Amsterdam.

[12]   Michaely, M. (1977) Exports and Growth: An Empirical Investigation. Journal of Development Economics, 4, 49-53. http://dx.doi.org/10.1016/0304-3878(77)90006-2

[13]   Meilak, C. (2008) Measuring Export Concentration: The Implications for Small States. Bank of Valletta Review, 37, 35-48. https://www.bov.com/documents/bov-review-37-paper-3

[14]   Balassa, B. (1978) Exports and Economic Growth: Further Evidence. Journal of Development Economics, 5, 181-189. http://dx.doi.org/10.1016/0304-3878(78)90006-8

[15]   Chenery, H.B. and Strout, A.M. (1966) Foreign Assistance and Economic Development. American Economic Review, 56, 679-733.

[16]   Myrdal, G. (1956) Development and Underdevelopment: A Note on the Mechanism of National and International Economic Inequality. National Bank of Egypt, Cairo.

[17]   Prebisch, R. (1950) The Economic Development of Latin America and Its Principal Problems, United Nations Department of Economic Affairs, Economic Commission for Latin America (ECLA), New York. http://archivo.cepal.org/pdfs/cdPrebisch/002.pdf

[18]   Samen, S. (2010) A Primer on Export Diversification: Key Concepts, Theoretical Underpinnings and Empirical Evidence. Growth and Crisis Unit, World Bank, Washington DC. https://blogs.worldbank.org/files/growth/EXPORT_DIVERSIFICATION_A_PRIMER_May2010%281%29.pdf

[19]   Singer, H.W. (1964) International Development: Growth and Change. McGraw-Hill, New York.

[20]   Heller, P.S. and Porter, R.C. (1978) Export and Growth: An Empirical Re-Investigation. Journal of Development Economics, 5, 191-193. http://dx.doi.org/10.1016/0304-3878(78)90007-X

[21]   Ocampo, J.A. (2013) Super-Cycles of Commodity Prices since the Mid-Nineteenth Century. Presentation at the International Monetary Fund.
https://www.imf.org/external/np/seminars/eng/2012/commodity/pdf/Ocampo.pdf

[22]   Erten, B. and Ocampo, J.A. (2012) Super-Cycles of Commodity Prices since the Mid-Nineteenth Century. Working Paper 110, UN Department of Economic and Social Affairs, New York. http://www.un.org/esa/desa/papers/2012/wp110_2012.pdf

[23]   Arnade, C. and Lee, D. (1990) Risk Aversion through Nontraditional Export Promotion Programs in Central America. US Department of Agriculture, Economic Research Service, Washington DC.

[24]   Helleiner, G.K. (1973) Manufactured Exports from Less Developed Countries and Multinational Firms. Economic Journal, 83, 21-47. http://dx.doi.org/10.2307/2231098

[25]   Helleiner, G.K. (1973) Manufacturing for Export, Multinational Firms and Economic Development. World Development, 1, 13-21. http://dx.doi.org/10.1016/0305-750X(73)90073-9

[26]   Helleiner, G.K. (1979) Structural Aspects of Third World Trade: Some Trends and Some Prospects. Journal of Development Studies, 15, 70-88. http://dx.doi.org/10.1080/00220387908421727

[27]   Nurkse, R. (1961) International Trade Theory and Development Policy. In: Ellis, H.S., Ed., Development for Latin America, St. Martin’s Press, New York, 234-263

[28]   Roemer, M. (1979) Resource-Based Industrialization in the Developing Countries: A Survey. Journal of Development Economics, 6, 163-202. http://dx.doi.org/10.1016/0304-3878(79)90012-9

[29]   Hanson, G. (2010) Export Dependence in Developing Countries. University of California, San Diego and NBER. http://wise.xmu.edu.cn/Master/News/NewsPic/2010112417234402.pdf

[30]   Díaz-Alejandro, C.F. (1974) Some Characteristics of Recent Export Expansion in Latin America. In: Giersch, H., Ed., The International Division of Labor: Problems and Perspectives, International Symposium, J.C.B. Mohr (Paul Siebeck), Tübingen, 215-236.

[31]   Kirkpatrick, C.H. and Nixson, F.I. (1983) The Industrialization of Less Developed Countries. Manchester University Press, Manchester.

[32]   Leibenstein, H. (1978) General X-Efficiency Theory and Economic Development. Oxford University Press, Oxford.

[33]   Klinger, B. and Lederman, D. (2006) Innovation and Export Portfolios. World Bank Policy Research, Working Paper 3983, World Bank, Washington DC.

[34]   Baldwin, R.E. (1963) Export Technology and Development from a Subsistence Level. Economic Journal, 73, 80-92. http://dx.doi.org/10.2307/2228404

[35]   Gutiérrez de Pineres, S.A. and Ferrantino, M. (1997) Export Diversification and Structural Dynamics in the Growth Process: The Case of Chile. Journal of Development Economics, 52, 375-391. http://dx.doi.org/10.1016/S0304-3878(96)00446-4

[36]   Gutiérrez de Pineres, S.A. and Ferrantino, M. (1999) Export Sector Dynamics and Domestic Growth: The Case of Colombia. Review of Development Economics, 3, 268-280. http://dx.doi.org/10.1111/1467-9361.00067

[37]   Fung, K.C., García-Herrero, A. and Ospina, M.N. (2013) Latin America Commodity Export Concentration: Is There a China Effect? BBVA Working Paper, No.13/06, Banco Bilbao Vizcaya Argentaria (BBVA), Hong Kong. https://www.bbvaresearch.com/KETD/fbin/mult/WP_1306_tcm348-370671.pdf

[38]   Persaud, S.C. and Meade, B.G.S. (2009) Trade and Development When Exports Lack Diversification: A Case Study from Malawi. USDA Economic Research Report 77, USDA, Oklahoma City. http://www.ers.usda.gov/media/155326/err77_1_.pdf

[39]   Sannassee, R.V., Seetanah, B. and Lamport, M.J. (2014) Export Diversification and Economic Growth: The Case of Mauritius. In: Jansen, M., Jallab, M.S. and Smeets, M., Eds., Connecting to Global Markets—Challenges and Opportunities: Case Studies Presented by WTO Chair-Holders, Chapter 1, WTO, Geneva, 11-23. http://www.wto.org/english/res_e/booksp_e/cmark_full_e.pdf

[40]   Hamed, K., Hadi, D. and Hossein, K. (2014) Export Diversification and Economic Growth in Some Selected Developing Countries. African Journal of Business Management, 8, 700-704. http://dx.doi.org/10.5897/AJBM2012.397

[41]   Agosin, M.R. (2009) Export Diversification and Growth. CEPAL Review, 97, 115-131.

[42]   Herzer, D. and Nowak-Lehnmann, F. (2006) What Does Export Diversification Do for Growth? An Econometric Analysis. Applied Economics, 38, 1825-1838.
http://dx.doi.org/10.1080/00036840500426983

[43]   Glezakos, C. (1973) Export Instability and Economic Growth: A Statistical Verification. Economic Development and Cultural Change, 21, 670-678. http://dx.doi.org/10.1086/450669

[44]   Lim, D. (1976) Export Instability and Economic Growth: A Return to Fundamentals. Oxford Bulletin of Economics and Statistics, 38, 311-322. http://dx.doi.org/10.1111/j.1468-0084.1976.mp38004007.x

[45]   Kenen, P.B. and Voivodas, C.S. (1972) Export Instability and Economic Growth. Kyklos, 25, 791-804. http://dx.doi.org/10.1111/j.1467-6435.1972.tb01082.x

[46]   Stanley, D.L. (1999) Export Diversification as a Stabilization Strategy: The Central American Case Revisited. Journal of Developing Areas, 33, 531-548.

[47]   Stanley, D.L. and Bunnag, S. (2001) A New Look at the Benefits of Diversification: Lessons from Central America. Applied Economics, 33, 1369-1383. http://dx.doi.org/10.1080/00036840010007498

[48]   MacBean, A.I. (1966) Export Instability and Economic Development. Allen and Unwin, London.

[49]   Cadot, O., Carrère, C. and Strauss-Kahn, V. (2011) Export Diversification: What’s behind the Hump? Review of Economics and Statistics, 93, 590-605. http://dx.doi.org/10.1162/REST_a_00078

[50]   Dogruel, A.S. and Tekce, M. (2010) Trade Liberalization and Export Diversification in Selected MENA Countries. Topics in Middle Eastern and African Economies, 13, 1-24.

[51]   Ferdous, F.B. (2011) Export Diversification in East Asian Economies: Some Factors Affecting the Scenario. International Journal of Social Science and Humanity, 1, 13-18. http://dx.doi.org/10.7763/IJSSH.2011.V1.3

[52]   Kim, D. (2012) Export Diversification: Lessons from Korean Experience. Working Paper, Korea Development Institute.
http://www.cieplan.org/media/publicaciones/archivos/302/Paper_de_Duol_Kim_Korea_ Development_Institute_Rep_de_Corea_en_ingles.pdf

[53]   Brainard, W. and Cooper, R. (1968) Uncertainty and Diversification in International Trade. Food Research Institute Studies in Agricultural Economics, Trade, and Development, 8, 256-285.

[54]   Massell, B.F. (1964) Export Concentration and Fluctuations in Export Earnings: A Cross-Section Analysis. American Economic Review, 54, 47-63.

[55]   Massell, B.F. (1970) Export Instability and Economic Structure. American Economic Review, 60, 618-630.

[56]   Love, J. (1979) A Model of Trade Diversification Based on the Markowitz Model of Portfolio Analysis. Journal of Development Studies, 15, 233-241. http://dx.doi.org/10.1080/00220387908421717

[57]   Love, J. (1979) Trade Concentration and Export Instability. Journal of Development Studies, 15, 60-69. http://dx.doi.org/10.1080/00220387908421726

[58]   Love, J. (1983) Concentration, Diversification and Earnings Instability: Some Evidence on Developing Countries’ Exports of Manufactures and Primary Products. World Development, 11, 787-793. http://dx.doi.org/10.1016/0305-750X(83)90091-8

[59]   Love, J. (1986) Commodity Concentration and Export Earnings Instability: A Shift from Cross-Section to Time Series Analysis. Journal of Development Economics, 24, 239-248. http://dx.doi.org/10.1016/0304-3878(86)90090-8

[60]   MacBean, A.I. and Nguyen, D.T. (1980) Commodity Concentration and Export Earnings Instability: A Mathematical Analysis. Economic Journal, 90, 354-362. http://dx.doi.org/10.2307/2231793

[61]   Tuong, H.D. and Yeats, A. (1976) A Note on the Measurement of Trade Concentration. Oxford Bulletin of Economics and Statistics, 38, 299-309. http://dx.doi.org/10.1111/j.1468-0084.1976.mp38004006.x

[62]   Kravis, I.B. (1970) Trade as a Handmaiden of Growth: Similarities between the Nineteenth and Twentieth Centuries. Economic Journal, 80, 850-872. http://dx.doi.org/10.2307/2229902

[63]   Markowitz, H.M. (1952) Portfolio Selection. Journal of Finance, 7, 77-91.

[64]   Markowitz, H.M. (1959) Portfolio Selection: Efficient Diversification of Investments. John Wiley & Sons, New York.

[65]   Sharpe, W.F. (1964) Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19, 425-442.

[66]   Lintner, J. (1965) The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics, 47, 13-37. http://dx.doi.org/10.2307/1924119

[67]   Blank, S.C. (1991) The Robustness of Single Index Models in Crop Markets: A Multiple Index Model Test. Western Journal of Agricultural Economics, 16, 259-267.

[68]   Collins, R.A. and Barry, P.J. (1986) Risk Analysis with Single Index Portfolio Models: An Application to Farm Planning. American Journal of Agricultural Economics, 68, 152-161. http://dx.doi.org/10.2307/1241660

[69]   Barry, P.J. (1980) Capital Asset Pricing and Farm Real Estate. American Journal of Agricultural Economics, 62, 549-553. http://dx.doi.org/10.2307/1240213

[70]   Gempesaw II., C.M., Tambe, A.M., Nayga Jr., R.M. and Toensmeyer, U.C. (1988) The Single Index Market Model in Agriculture. Northeastern Journal of Agricultural and Resource Economics, 17, 147-155.

[71]   Turvey, C.G. and Driver, H.C. (1987) Systematic and Nonsystematic Risks in Agriculture. Canadian Journal of Agricultural Economics, 35, 387-401. http://dx.doi.org/10.1111/j.1744-7976.1987.tb02236.x

[72]   De Gouvea, R., Kapelianis, D., Montoya, M.J.R. and Vora, G. (2014) An Export Portfolio Assessment of Regional Free Trade Agreements: A Mercosur and Pacific Alliance Perspective. Modern Economy, 5, 614-624. http://dx.doi.org/10.4236/me.2014.55058

[73]   Di Giovanni, J. and Levchenko, A.A. (2011) The Risk Content of Exports: A Portfolio View of International Trade. In: Frankel, J. and Pissarides, C., Eds., NBER International Seminar on Macroeconomics 2011, University of Chicago Press, Chicago.

[74]   Sharpe, W.F. (1966) Mutual Fund Performance. Journal of Business, 39, 119-138. http://dx.doi.org/10.1086/294846

[75]   Sharpe, W.F. (1975) Adjusting for Risk in Portfolio Performance Measurement. Journal of Portfolio Management, 1, 29-34. http://dx.doi.org/10.3905/jpm.1975.408513

[76]   Sharpe, W.F. (1994) The Sharpe Ratio. Journal of Portfolio Management, 21, 49-58. http://dx.doi.org/10.3905/jpm.1994.409501

[77]   Treynor, J.L. (1965) How to Rate Management of Investment Funds. Harvard Business Review, 43, 63-75.

[78]   Camanho da Costa Neto, N. and Romeu, R. (2011) Did Export Diversification Soften the Impact of the Global Financial Crisis? IMF Working Paper, No. 11/99, IMF, Washington DC. https://www.imf.org/external/pubs/ft/wp/2011/wp1199.pdf

 
 
Top