Exploring Product Diversification Opportunities in Pakistan for Export Growth

Abstract

Diversification brings economic growth and forms a diversified production structure in any developing country. The purpose of this study is two-fold: attempting to decompose product exports of two key sectors (textile and sports) and measure the significance of intensive, extensive, and new products towards export growth. The study finds the long-run association between GDP per capita and the three indices of export product diversification i.e., intensive and extensive margins and product diversification (Theil index). By selecting the top five exporting countries, the decomposition was achieved by using the (Amiti and Freund, 2008) methodology while for the accomplishment of the second objective, the paper used the ARDL Bound testing procedure. Hence, the results showed positive export growth from 2009 to 2020. The intensive margin contribution to the export growth was significant in the case of 26 textile subdivision products. However, in the main subsector of textile (65 division), the contribution from the new products is large and more significant compared to other sub-sectors. By applying the ARDL testing method, the results of the quantitative analysis confirmed the positive and significant long-run relationship among GDP per capita, product export diversification, and extensive, and intensive margins. Both quantitative and qualitative analysis suggests that Pakistan’s government should encourage the diversification in traditional as well as new product exports with investment and innovation. More attention to innovation in the textile and apparel sector is recommended as this sector has more potential. The sports industry, on the other hand, has potential and should be given a boost through timely investment and policy formulation.