Export Diversification Essay

What Export diversification means
Export diversification is defined as change in the composition of country’s existing export product mix (Ali, Alwang and Siegel 1991) or as the spread of production over many sectors (Berthelemy & Chauvin, 2000). So, the term export diversification is divided into two parts- product diversification and geographical diversification. Product diversification is the combination of the export of new products to new destinations and new products to old destinations whereas geographical diversification is the sum of the export of new products to new destinations and old products to new destinations.
It can also be broken down further into intensive and extensive margins of diversification.
Extensive export diversification

Horizontal diversification takes place within the same sector (primary, secondary or tertiary) and requires adjustment in the country’s export mix by adding new products on existing export baskets within the same sector with the hope to mitigate adverse economic and political risks.
Vertical diversification into processing of domestic manufactured goods entails a shift from primary sector to secondary or tertiary sector. It entails finding out further uses for exisiting products by means of increased value added services such as processing, marketing or other services. It can help expand market opportunities for raw material and help enhance growth and stability since processed goods usually have greater stability than raw commodities.
Diagonal diversification is also sometimes cited in trade literature. It deals with the shift from imported input into secondary and tertiary sector. How to measure diversification
Export diversification is commonly measured in the following three ways. The Export Concentration Ratio (ECR) is the simplest approach used to measure export concentration. The Concentration Ratio (CR) measures the export share of only the largest export categories. It is calculated as

This general relationship holds true at least until an economy reaches advanced economy status (with GDP per capita of $25,000-$30,000; see also Cadot et al., 2011). The relationship is evident in Figure 1 (left panel), which plots country-year observations. It also holds true when the figure is restricted to show the pure cross-sectional or time-series variation. Figure 1 right panel for cross section); The export diversification is measured in terms of Theil Index ; a lower value of the Theil index signals higher export