Export Diversification, Upstreamness and Global Value Chains

Abstract

This study examines the determinants of export diversification for a group of Commonwealth member countries. It introduces a measure of participation in global value chains (GVCs) along with the average ‘upstreamness’ of exports as potential explainers in addition to the usual variables used, such as income, human capital and physical capital. It finds that export diversification by commodity is lowest for least developed countries (LDCs), followed by small states and small island developing states (SIDS), but also that there is a definite impact of Commonwealth heritage on intra-Commonwealth trade. It concludes that mere participation in value chains is not enough: the exact positioning of countries in the value chain is critical and requires more policy attention. Furthermore, developing countries benefit from diversification whereas developed countries gain from specialisation.