Export diversification in low-income countries and small states: Do country size and income level matter?

Abstract

Export structure is less diversified in low-income countries (LICs) and small states that generally face constraints in resources and economic size. This paper presents an empirical analysis on the linkages between export structure and economic growth/volatility in LICs and small states, by using a variant of export concentration indices. The analysis documents that export diversification in products or industries may promote economic growth and reduce economic volatility in these countries. The analysis further demonstrates that the economic benefits of export diversification differ by the country size and income level—larger gains for relatively small and poor countries within a group of LICs and small states. In addition, diversification in export partners or markets tends to be beneficial for economic growth and stability.