Export specialization and diversification by countries (1981 -2015)

Abstract

Exports bring a lot of benefits to a country, such as foreign exchange earnings, labor creation, cost reduction, and international participation. Nevertheless, exports also expose the country to some risks. The goal of this research work is to quantify the vulnerability level of countries involved in foreign trade through the Herfindhal index. The higher this index is, the higher the concentration of exports in one specific sector, which translates into greater vulnerability to changes or shifts in the sector's demand. Therefore, with more diversified exports, the ability of a country to face international economic fluctuations increases. Conversely, countries with poorly diversified exports are in a remarkably fragile economic condition. The methodology followed is both descriptive and quantitative. Data from the World Trade Organisation on annual exports per sector in 181 countries in the period 1987-2015 was analysed. The determining factors of the concentration or vulnerability index were analysed through panel data. This index is used to measure the exports specialisation or concentration level in the countries within the sample. The variables analysed are: population, GDP, GDP per capita, exports as % of GDP, and exports per area. The results show that The Netherlands, U.S.A., and South Korea have the lowest specialisation index, and Iraq, Greenland and Angola the highest. The conclusion is that diversification maximises exports supply and reduces the impact of international fluctuations.