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A new look at the benefits of diversification: lessons from Central America

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  • Denise Stanley
  • Sirima Bunnag

Abstract

Recent trends of export diversification in Central America may lower foreign exchange earnings instability there. Four countries-Costa Rica, El Salvador, Honduras, and Guatemala-are analysed across a twenty-year period. The paper uses United Nations Commodity Trade Statistics to explain why Costa Rica and Honduras have enjoyed greater earnings stability in recent years, despite the fact that Honduras has not greatly diversified its export products and markets. Despite the growth of new agricultural and manufacturing goods, traditional primary products still dominate the countries' export portfolios. Specific products within each of the four broad product category groups contribute to the varied country outcomes. Summary statistics from the United Nations (panel) data suggest newer agricultural exports have not stabilized Guatemalan and Salvadoran export earnings, while Honduras has enjoyed relatively stable banana export revenues and Costa Rica has benefited from the smooth flow of microelectronic products. Further panel data regression analysis shows country size and intangible country effects also explain parts of the detrended earnings deviation in addition to product base and level of diversification.

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  • Denise Stanley & Sirima Bunnag, 2001. "A new look at the benefits of diversification: lessons from Central America," Applied Economics, Taylor & Francis Journals, vol. 33(11), pages 1369-1383.
    • Handle: RePEc:taf:applec:v:33:y:2001:i:11:p:1369-1383
    DOI: 10.1080/00036840010007498
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    1. Islam, Nurul, 1990. "Horticultural exports of developing countries: past performances, future prospects, and policy issues," Research reports 80, International Food Policy Research Institute (IFPRI).
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    Cited by:

    1. Patrick Domingues & Felipe Starosta de Wald, 2015. "Export diversification and the legacy of the Soviet Union," Erudite Working Paper 2015-03, Erudite.
    2. Hakim Ben Hammouda & Stephen Karingi & Angelica Njuguna & Mustapha Sadni Jallab, 2010. "Growth, productivity and diversification in Africa," Journal of Productivity Analysis, Springer, vol. 33(2), pages 125-146, April.
    3. Sèna Kimm Gnangnon, 2021. "Aid for trade and inflation: Exploring the trade openness, export product diversification and foreign direct investment channels," Australian Economic Papers, Wiley Blackwell, vol. 60(4), pages 563-593, December.
    4. Herzer, Dierk & Nowak-Lehmann D., Felicitas, 2006. "Export Diversification, Externalities and Growth: Evidence for Chile," Proceedings of the German Development Economics Conference, Berlin 2006 12, Verein für Socialpolitik, Research Committee Development Economics.
    5. Sena KIMM Gnangnon, 2020. "Export Product Diversification and Fiscal Space Volatility in Developing Countries: Exploring the Economic Growth Volatility Channel," Economics Bulletin, AccessEcon, vol. 40(3), pages 1837-1854.
    6. Gnangnon, Sèna Kimm, 2020. "Aid for Trade flows and Poverty Reduction in Recipient-Countries," EconStor Preprints 213807, ZBW - Leibniz Information Centre for Economics.
    7. Gnangnon, Sèna Kimm, 2022. "The Least Developed Countries' Services Waiver and the Stability of Least Developed Countries' Services Exports," EconStor Preprints 260587, ZBW - Leibniz Information Centre for Economics.
    8. Dierk Herzer, 2007. "How does trade composition affect productivity? Evidence for Chile," Applied Economics Letters, Taylor & Francis Journals, vol. 14(12), pages 909-912.
    9. Gnangnon, Sèna Kimm, 2023. "Effect of the duration of membership in the GATT/WTO on economic growth volatility," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 448-467.
    10. Sèna Kimm Gnangnon, 2022. "Aid for Trade, export product diversification, and foreign direct investment," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 534-561, February.
    11. Dierk Herzer & Nowak-Lehnmann Felicitas, 2006. "What does export diversification do for growth? An econometric analysis," Applied Economics, Taylor & Francis Journals, vol. 38(15), pages 1825-1838.
    12. Haouas, Ilham & Heshmati, Almas, 2014. "Can the UAE Avoid the Oil Curse by Economic Diversification?," IZA Discussion Papers 8003, Institute of Labor Economics (IZA).
    13. Felipe Starosta de Waldemar, 2010. "How costly is rent-seeking to diversification: an empirical approach," Documents de travail du Centre d'Economie de la Sorbonne 10008, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    14. Taylor, Timothy G. & Francis, Brian, 2003. "Agricultural Export Diversification in Latin America and the Caribbean," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(Supplemen), pages 1-11.
    15. Javed, Zanib & Munir, Kashif, 2016. "Impact of Export Composition on Economic Growth in South Asia," MPRA Paper 71519, University Library of Munich, Germany.
    16. Widodo, Tri, 2009. "Inter- and Intra-ASEAN Regional Trade," MPRA Paper 77990, University Library of Munich, Germany.
    17. Herzer Dierk, 2005. "Exportdiversifizierung und Wirtschaftswachstum in Chile / Export Diversification and Economic Growth in Chile: Eine ökonometrische Analyse / An Econometric Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 225(2), pages 163-180, April.
    18. Lee, Jinsoo & Yu, Bok-Keun, 2019. "The Effects of Export Diversification on Macroeconomic Stabilization: Evidence from Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 41(1), pages 1-14.
    19. Dierk Herzer & Felicitas Nowak-Lehmann D., 2004. "Export Diversification, Externalities and Growth," Ibero America Institute for Econ. Research (IAI) Discussion Papers 099, Ibero-America Institute for Economic Research.

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