Did Export Diversification Soften the Impact of the Global Financial Crisis?

24 Pages Posted: 20 May 2011

See all articles by Nelson Camanho

Nelson Camanho

School of Economics and Finance, Queen Mary University of London

Rafael Romeu

International Monetary Fund (IMF)

Date Written: May 2011

Abstract

This study considers the role of export diversification in determining trade outcomes during the global financial crisis. The impact of export diversification (or concentration) is measured by assessing three different dimensions of specialization. First, concentration by geographic destination is considered; that is, whether the bulk of exports from a country go to many or few trading partners. Second, industry/sectoral concentration is considered; that is, whether a country’s exports are scattered across many industries and sectors, or concentrated in just a few. Third, product concentration is considered; that is, whether countries produce many products within their export sectors or just a few. The workhorse gravity trade model is adapted with trade diversification as an additional trade cost, and the model solution is empirically tested on a dataset containing over 500 thousand observations for Latin America. Industry and product concentration are found to significantly affect the resilience of Latin American countries’ trade during the global financial crisis - increasing the diversity of both export sectors and export products within sectors by one standard deviation reduces the quarterly decline in exports by approximately 4.7 percent. Diversifying exports across many different trading partners is not found to significantly affect outcomes.

Keywords: Commodities, Commodity prices, Cross country analysis, Exports, Financial crisis, Global Financial Crisis 2008-2009, Industrial production, International trade, Latin America, Manufacturing, Trade models

Suggested Citation

Camanho, Nelson and Romeu, Rafael, Did Export Diversification Soften the Impact of the Global Financial Crisis? (May 2011). IMF Working Paper No. 11/99, Available at SSRN: https://ssrn.com/abstract=1847344

Nelson Camanho

School of Economics and Finance, Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Rafael Romeu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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