Export composition and economic growth: evidence from South Asian countries

Abstract

Purpose The purpose of this paper is to analyze the impact of export composition (diversification or specialization) on economic growth of South Asian countries, while export diversification is further categorized into horizontal and vertical export diversification. Design/methodology/approach The study uses Cobb-Douglas production function, in which export is augmented in the production function. To analyze the non-linear relationship (inverted U- or U-shape) with economic growth, square term of exports Herfindahl index, horizontal, and vertical export diversification are introduced in the model. Panel data of four countries of South Asia, i.e. Bangladesh, India, Pakistan and Sri Lanka is utilized from 1990 to 2013 at annual frequency under fixed effect model. Findings Exports Herfindahl index represented inverted U-shape relationship with economic growth. An increase in export diversification lead to higher economic growth initially, however, after the threshold level, export specialization have positive impact on economic growth. Horizontal export diversification is not beneficial for economic growth initially, however, after the threshold level, introducing new sector increases economic growth in South Asian countries. Vertical export diversification has insignificant and U-shaped relationship with economic growth. Practical implications Education and skill formation are essential components for creativity and innovation, therefore attention must be paid toward labor training and education. Government must encourage the exporters to increase diversification in their export portfolio as well as provide incentives and technical assistance for research and development in the manufacturing sector. Originality/value This study contributes by analyzing the non-linear relationship between export composition, i.e. diversification (horizontal and vertical) or specialization and economic growth in South Asian countries. The study is useful to boost the potential level of exports on sustainable economic growth of South Asian countries. This study provides the essential evidence, information and better understanding to key stakeholders of exports.

Estimating the key determinants of foreign direct investment flows in Pakistan: new insights into the co-integration relationship

“…Thus, a suitable FDI policy is required; it would not be wise to rely on other economies' FDI experiences solely. Munir and Javed (2018) have evaluated the impact of export composition (diversification or specialization) and economic growth nexus in the context of selected South Asian countries by using provincial data. They have used panel data analysis for selected South Asian countries during the period 1990-2013.…”

Export diversification and economic growth: A threshold regression approach for emerging markets and developing countries

“…However, the thresholds mentioned have not been defined in detail in the study. Aditya and Acharyya (2013) findings are in parallel with Munir and Javed (2018). Using non-linear estimation techniques with a dynamic panel model -GMM for 65 countries in the period between 1965 and 2005, the study indicates the U-shaped relationship between export concentration and economic growth that implies a reversed U-shaped relationship between export diversification and growth.…”

“…It is inferred that export diversification should be a key element of the development process. Munir and Javed (2018) analyze the impacts of horizontal and vertical export diversification on the economic growth of 4 South Asian countries for the period 1990-2013. Using regression analysis of panel data with a squared term of export diversification as a regressor represents a reversed U-shaped (hump-shaped) relationship between vertical diversification and growth and a U-shaped relationship for horizontal diversification.…”

Export-Led Growth Hypothesis: Empirical Evidence from Selected South Asian Countries

“…South Asia is one of the progressive continents as this region has gained its leads as fastest growing region in the world that are experiencing sustained and robust growth patterns form the last few years (Munir and Javed, 2018). This could be attributed to the sturdy performance of the various Asian economies like India and Sri-Lanka which has been driven by foreign investments, infrastructure progress, energy efficiencies and determination of governments (Chow, 2010).…”