## How Countries Can Diversify Their Exports

_IMF Blog, September 22, 2021_

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## Bibliographic details
- Authors: Gonzalo Salinas
- Published: September 22, 2021

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### Overview
- Article: "How Countries Can Diversify Their Exports" by Gonzalo Salinas, September 22, 2021.
- Central finding: Four economy-wide factors—governance, education, infrastructure, and trade policy—relate closely to more varied and complex exports across countries.
- Empirical scope: Analysis covers "201 countries and territories".
- Motivation: Commodity-dominated export profiles (example: Chile) can mask broader export complexity; Chile is “the world’s biggest copper producer,” with copper shipments meeting “around one-third of global demand” and representing “about half its goods exports,” yet Chile also exports vehicles, pharmaceuticals and telecommunications equipment.

### New approach and methodology
- Problem with existing measures: Traditional economic complexity indices have “strong sensitivity to commodities,” which can distort their accuracy.
- Innovation: Staff research proposes new ways to gauge diversity and complexity of national exports that:
  - Look beyond commodities.
  - Account for an economy’s geographic proximity to trade partners.
  - Focus on exports excluding commodities like metals or oil.
- Conceptual shift: Emphasizes “horizontal policies” (economy-wide) rather than narrowly targeted industrial policies.

### Four key factors linked to non-commodity export diversification
- The methodology shows a clear link between non-commodity exports that aid diversification and four economy-wide variables:
  - Governance
  - Education
  - Infrastructure
  - Open trade (trade policy)
- Mechanism: Improving these areas “helps to diversify by creating conditions that make it possible to boost complex or higher-value-added exports.”
- Comparative observation: Except for abundant copper reserves, Chile’s economic profile “surprisingly, resembles Malaysia’s” — both have strong education and institutions, but Malaysia benefits from closer proximity to major global supply-chain hubs (China, Japan and Korea).

### Empirical examples and role models
- Prominent diverse exporters: Hong Kong, Singapore, Ireland, Denmark — noted for “among the most diverse and complex shipments and the strongest horizontal policies.”
- Countries with stronger-than-expected policies given income levels:
  - Rwanda for governance
  - Georgia and Ukraine for educational attainment
  - Malaysia for infrastructure
  - Mauritius and Peru for tariffs

### Policy implications and recommendations
- Core recommendation: Strengthen horizontal (economy-wide) policies to foster export diversification and complexity.
- Specific actionable areas:
  - Enhance connectivity to “effectively shorten geographic distance” between nations.
  - Improve transportation logistics (example: seaports to reduce transit times).
  - Ease trade policy barriers and enhance trade facilitation.
  - Foster spread of technology through educational exchange programs.
  - Invest in communication technologies such as broadband to support the digital economy.
- Rationale: These measures help shorten effective distance, reduce trade frictions, and enable firms to enter more complex value chains.

### Assessment of industrial policy
- Stance: The analysis challenges the belief that targeted industrial policies are the best route to broaden trade.
- Risks of industrial policy cited:
  - Diminished fiscal capacity
  - A race to the bottom in taxation
  - Eroded multilateralism
- Evidence: “There is no cross-country statistical evidence of their effectiveness.”
- Conclusion: Diversification strategies built around broader policies and connectivity are “both less controversial and more supportive of export diversification and complexity.”

*IMF Blog — How Countries Can Diversify Their Exports; Gonzalo Salinas; September 22, 2021*

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## References

- [IMF staff paper](https://www.imf.org/en/Publications/WP/Issues/2021/03/05/Proximity-and-Horizontal-Policies-The-Backbone-of-Export-Diversification-50141)

_Source: https://www.imf.org/en/blogs/articles/2021/09/22/how-countries-can-diversify-their-exports_