A New Approach to the Relationship between Export Instability and Economic Development

Abstract

This paper proposes a hypothesis to explain export instability in terms of the life cycle of products and the degree of industrialization of the exporting country. The hypothesis, which challenges commonly held assumptions, is tested using two groups of products. The results of the study have important policy implications. They suggest that the usual recommendation to developing countries to diversify their exports may be based on invalid assumptions; provide an explanation for the unexpected finding that export diversification has often increased export instability in developing countries; and suggest how export diversification in developing countries should proceed to achieve stability.