Understanding Export Diversification: Key Drivers and Policy Implications

IMF Working Papers, May 10, 2019

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Objective: Identify key factors that explain variation in export diversification across countries and over time.
Method: Bayesian Model Averaging (BMA), which addresses model uncertainty and ranks factors in order of importance vis-à-vis their explanatory power.

Core determinants of greater export diversification:
- Human capital accumulation.
- Reduction of barriers to trade.
Additional influential policy areas:
- Improving quality of institutions.
- Developing the financial sector.
For commodity exporters, the ranked importance is:
- Reducing barriers to trade (most important).
- Improving education outcomes at the secondary level.
- Financial sector development.

Prioritize policies that boost human capital (education and related outcomes) to support diversification.
Implement trade policy reforms to reduce barriers to trade and facilitate entry into new export products and markets.
Strengthen institutional quality to create a conducive environment for diversification.
Promote financial sector development to enable firms to invest in new products and activities.
For commodity-dependent countries, emphasize trade liberalization and secondary education improvements alongside financial deepening.

Subjects: Commodities; Environment; Export diversification; Exports; Human capital; International trade; Labor; Natural resources
Keywords: achieving diversification; Central Africa; commodity exporter; Diversification; diversification index; East Africa; Education; Export diversification; export product space; Exports; Human capital; margin diversification; Middle East; natural resource; Natural Resource Rent; Natural resources; North Africa; Trade; WP

Source: "Understanding Export Diversification: Key Drivers and Policy Implications", IMF Working Papers, May 10, 2019.