Product diversification and export performance : a comparative study of developing Asian countries

There has been renewed emphasis in the recent trade policy debate on the potential positive impact of diversification of the product composition on export expansion. However, the standard trade theory predicts that export success depends on pursuing comparative advantages rather than policy-induced export diversification. This paper studies the relationship between product diversification and export performance of developing Asian economies using panel data from 1976 to 2017. The methodology involves estimating export equations for total non-oil exports and product subcategories. Commodity diversification is alternatively measured using the Herfindahl-Hirschman and Theil indices. The autoregressive distributed lag (ARDL) technique is used to delineate short-run and long-run effects. The results suggest that export diversification has a negative and statistically significant impact on export performance. This relationship holds for total non-oil exports and the major exports subcategories. The magnitude of the impact varies for product categories, casting doubt on the results of previous studies that focused on aggregate exports. Supply-side factors appear to be more important than external demand in explaining inter-country differences in export performance.