TITLE:
Reassessing Export Diversification Strategies: A Cross-Country Comparison
AUTHORS:
Raul Gouvea, Gautam Vora
KEYWORDS:
Qualitative/Quantitative Comparisons, International Trade Theory, Economic Clustering, Single Index Model, Export Portfolio Performance
JOURNAL NAME:
Modern Economy,
Vol.6 No.1,
January
23,
2015
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.