Explaining Trends and Factors Affecting Export Diversification in ASEAN and SAARC Regions: An Empirical Analysis

Shabana Noureen,Zafar Mahmood

doi:10.51732/njssh.v2i1.10

Abstract

This paper examines the role played by country-specific factors in the determination of export product diversification process. To meet this objective, the paper begins by constructing a time series data for export diversification using the Herfindahl index. Then, it applies the fully modified OLS co-integration model to a panel of selected ASEAN and SAARC countries to find out the main determinants of export product diversification. Export diversification pattern shows that since the mid-1980s the ASEAN countries have continuously witnessed export diversification and the SAARC countries embarked on export diversification journey since the early 1990s. Analysis of the determinants suggests that foreign direct investment, domestic investment, competitiveness, real depreciation of domestic currency, financial sector development and institutional strength are significantly and positively related to export product diversification in both regions. These findings have important policy implications for the two regions. They call upon the policymakers for further diversification of exports, especially in the areas of their specialization that are vital for their smooth and sustained foreign exchange earnings as well as economic development. The study also recommends improving international competitive strength via improving business environment to achieve the goal of export product diversification.

Highlights

Developing countries have been experiencing export product concentration
Results of fully modified ordinary least square model show that export diversification is significantly and positively dependent on explanatory variables included in the model for the selected economies of South Asian Association for Regional Cooperation (SAARC) and Association of Southeast Asian Nations (ASEAN) regions (Table 9)
This paper has analyzed the role played by country-specific factors in the determination of export diversification process

Summary

INTRODUCTION

Developing countries have been experiencing export product concentration. This is mainly because they produce and export raw. Finished manufactured products exported by developing countries face high trade barriers in foreign markets Exports of these countries have highest concentration upon raw materials and semimanufactured products. Mindful of the negative repercussions, developing countries have been targeting export product diversification as a means to achieve the goals of export expansion and higher per capita income Besides globalizing their economies, these countries have been striving hard to introduce structural transformation by moving away from exporting primary and intermediate products to export finished products. Once countries achieve a certain higher level of income through export diversification, they start producing differentiated products by internalizing economies-of-scale With such transformation, these countries tend to move towards re-concentration in export products. Rest of this paper is planned as follows: Section 2 provides a brief overview of SAARC and ASEAN regions; Section 3 presents the theoretical framework; Section 4 presents the empirical model and data sources; in Section 5, empirical results are discussed; and Section 6 concludes the paper with some implications for policy

OVERVIEW OF THE SAARC AND ASEAN REGIONS

THEORETICAL FRAMEWORK

EMPIRICAL MODEL AND DATA

Data Sources Main data source for all aforementioned variables is World

RESULTS AND DISCUSSION

CONCLUSION AND POLICY IMPLICATIONS