EXPORT DIVERSIFICATION IN THE CEFTA 2006 REGION. A „U“ SHAPE PATTERN

Abstract

The main purpose of this paper is to evaluate patterns among export diversification along with the economic development in the CEFTA 2006 region. The pattern, which is evaluated here, is a hump-shaped pattern, which states that diversification and re-concentration of export and has a „U“shape relationship with GDP per capita. Hump-shaped pattern suggests that countries add products to their export basket during the early stages of economic development, while high-income countries remove goods for which they have lost a comparative advantage. Consequently, countries are slower to specialize in exporting products in which they have a comparative advantage, which leads to a humpbacked appearance. It may be concluded that one of the driving forces for export diversification is certainly GDP per capita, where diversification and later re-concentration take place mainly through extensive margins. On the other hand, intensive margins do follow the same pattern as extensive margins. Furthermore, extensive margins represent export diversification to new markets, where intensive margins present export diversification of new products. Export diversification is closely related to commodity export dependence. The country is considered to be commodity export-dependent when more than 60 percent of its total merchandise exports are composed of commodities. In these terms, countries with lower export diversification usually suffer from slow development, non-diversified economic structures, macroeconomic instability, economic volatility, "Dutch disease", political instability, poor political and economic governance, etc. Empirical studies reveal that export diversification can promote economic growth and reduce economic volatility. Greater diversification of exports contributes to greater resilience to exogenous shocks as well as stronger long-term growth and development of the country. With greater export diversification of products and greater geographical diversification (extensive and intensive margins), the risk of exogenous negative impacts is reduced. To test the U-shaped hypothesis, we used Herfindahl–Hirschman index as a measurement for export diversification. In this paper, we used secondary data from the UNCTADstat database for export. Data for GDP per capita were gathered from the World Bank database. After calculating the mentioned index for export diversification/specialization for CEFTA 2006 region, we presented a link between mentioned indexes with GDP per capita. Our results reject the null hypothesis, which states that there is a U-shaped relationship between export diversification and GDP per capita in the CEFTA 2006 region. In the CEFTA 2006 region, countries do not follow the path of higher diversified export at lower GDP per capita, and later specialization in exporting products with an increase of GDP per capita, in a product that which they have comparative advantages. The examined period in this paper was from 2007 to 2020 (13 years). Future studies could examine what the main drivers for export diversification are in CEFTA 2006 region. Also, it would be interesting to examine which margins, extensive or intensive, are the main drivers for diversification and later re-concertation at an individual level of each country.