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

Abstract

Purpose ─ This study investigates the nonlinear relationship between export diversification and economic growth in 44 emerging markets and developing countries.Methods ─ The threshold regression methodology is employed to analyze data for the period between 1995 and 2015. Export diversifications in terms of both geography and product are measured by the Herfindahl-Hirschman market concentration index and overall Theil index, respectively.Findings ─ The results demonstrate a nonlinear relationship between export diversification and economic growth. Above the threshold, diversified export markets and products boost economic growth. Below the threshold, the positive relationship between diversification in both markets and products and growth is insignificant.Implications ─ The research implies that export diversification strategy in emerging markets and developing countries should be considered carefully when the level of export diversification is higher than the threshold, which usually occurs in the later stage of diversification.Originality ─ The study investigates nonlinearity in terms of degrees of diversification instead of degrees of development. With this approach, the threshold is identified to show how economic growth is affected under different regimes.

The Impact of Extreme Weather Events on Quality of Life in Small Island Developing States with Varying Levels of Export Diversification

“…Naude and Rossouw (2010) align with the studies mentioned above and reinforce the results that were found by Markakkaran and Sridharan (2022) and those suggested by Trinh and Thuy (2021) and Aditya and Acharyya (2011). Naude and Rossouw (2010) look at the relationship between export diversity and economic performance in Brazil, China, India, and South Africa (BCIS).…”

“…They find that lower income countries benefit from export diversification, while higher income countries benefit from export specialization. Trinh and Thuy (2021) also investigate the 'non-linear' relationship between export diversification and economic growth. Although their threshold regression approach is confusing, their high-level findings communicate that export diversification can reach a level where it no longer contributes positively to economic growth.…”

Export Complexity and Economic Growth: Empirical Analysis for Selected CEE Countries

“…Schott (2008) explored export sophistication of China, USA, and other OECD members by applying a comparative approach, while Wang and Wei (2008) investigated the main determinants of China's export sophistication improvements. Additionally, Al-Marhubi (2010) presented empirical evidence that export diversification promotes economic growth for a group of selected developing countries, while Trinh and Thuy (2021) empirically investigated the non-linear relationship between export diversification and economic growth in 44 emerging markets and developing economies, supporting the thesis that export is important for long-term economic growth. Yuni, Urama, Ugwuegbe, and Agbanike (2020) examined the relationship between the level of export diversification and economic growth by applying fixed effect and GLS regression models to Sub-Saharan African countries and found a U-shaped relationship between export concentration and economic growth.…”

Export Diversification, Financial Sector Development and Economic Growth: Empirical Evidence from West African Sub-Region

“…In line with the notion of immiserizing growth, economic growth countered by decreasing trade terms can exacerbate a country's situation. Developing countries become trapped in this predicament when they focus on the exportation of raw materials at a lower price relative to manufactured items (Trinh and Thuy, 2021). Sustained growth requires developing nations to diversify their exports from basic products to manufactured goods, as suggested by the term "vertical diversification."…”

“…In likewise manner, Prebisch (1950) and Sachs & Waner (1995) noted that the 'natural resource curse' argument suggests that a substantial percentage of exports of natural resource over GDP might impair trade terms, cause unnecessary instability, and lead to low growth in productivity. Cadot et al (2013) provide three supporting grounds for this idea: (i) when the relative price of basic items falls, nations that rely heavily on commodities suffer from decreasing exports; (ii) due to unstable trade terms, the preponderance of primary items in the export basket is a component of growth-constraining instability; and (iii) focusing on basic commodities reduces productivity since primary commodities are typically laggards (Trinh and Thuy, 2021).…”