Determinants of Export Diversification Around the World: 1962–2000

Abstract

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.