How Countries Can Diversify Their Exports

 

Government, education, infrastructure, and trade policy are four economic elements that are directly related to more complicated and diversified exports between nations.

Chile, the largest copper producer in the world, exports approximately half of its goods and supplies roughly one-third of the world's demand for metal.

Beyond the dominance of mining, however, Chile's trade flows are more diverse and complex than they may seem, with sizeable exports of automobiles, pharmaceuticals, and telecom equipment. And the Andean economy is one of those that stands out as a role model for diversification strategies.

 By looking beyond commodities, the research demonstrates that economy-wide policies, such as governance and education, help foster a variety of exports more than policies that are specifically targeted toward industries. This finding can better direct countries looking to increase their international trade.

 The analysis of 201 nations and territories goes beyond the economists' typical use of economic complexity indices. These proxies for a specific economic system's production capacity are highly sensitive to commodities, which can affect how accurate they are.

 Good policies can make a big difference

 The new method of explaining diversification emphasizes the necessity of efficiently reducing the geographic distance by fostering greater connectedness between nations for governments aiming for more varied trade flows. By minimizing the amount of time that commodities must travel between ports, for example, better transportation logistics can effectively shorten the distance. Other beneficial policies consist: of lowering trade policy hurdles, improving trade facilitation, promoting the diffusion of technology through educational exchange programs, and funding communication technologies like broadband that assist the digital economy.

 It may appear difficult to strengthen horizontal policy, especially for low-income nations. However, a few nations, such as Rwanda for governance, Georgia and Ukraine for educational attainment, Malaysia for infrastructure, and Mauritius and Peru for tariffs, have far stricter rules than would be expected given their economic levels. These nations' economies are instructive.

 That doesn't negate the potential efficacy of more focused support for specific sectors, to be sure. However, some industrial policy levers may be ineffective or even destructive. Potential negative effects include weakened fiscal capacity, a taxation arms race, and weakening multilateralism. Additionally, there is no nationwide data proof of their usefulness.

 Instead, plans for diversification based on broader policies and linkages are less contentious and more supportive of complexity and export diversification.