Economic Growth and Stability in the Euro-Med Region: Concentration or Diversification?

With the growth of competition due to globalization and continued process of EU enlargement, economic diversification is a topic of increasing interest in the Euro-Med region for promoting economic growth and stability. There are two competing hypotheses. One hypothesis argues that in a diversified economy risk is spread more evenly across a number of industries, and makes it more resilient to external events and developments, reducing instability. Another hypothesis argues that specialization is key to growth and production and export diversification. The objective of this paper is to investigate the differences in export diversification patterns between European and Mediterranean sides, using panel data for 1995-2004 periods. The estimation results obtained indicated that export diversification in the Euro-Med region as a whole has had favorable impact upon their economic growth rates and has reduced the instability in their economic performance.