Abstract
We evaluate the export diversification structure of developing countries using a large cross-country panel of detailed exporting activity and constructed world market prices in the context of modern portfolio theory. We find that there are considerable welfare gains from moving towards a more 'optimal' export structure on the mean-variance efficient frontier, although the extent of this differs widely across countries. Our econometric analysis also shows while in general greater openness has increased the expected earnings from exports, it has also resulted in greater variability. Whether this has thus resulted in increases in expected welfare depends crucially on the level of risk aversion of countries.
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