Gheza, Daniel, La promotion de exportations de produits manufacturiers en Tunisie: le cas de la sous-traitance internationale. World Employment Programme Research, WEP 2-36/WP 15, International Labour Office, Geneva, February 1982.
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Lawson, C. W., “The Decline in World Export Instability: A Reappraisal,” Oxford Bulletin of Economics and Statistics, Vol. 36, February 1974.
Love, J., “Concentration, Diversification and Earnings Instability: Some Evidence on Developing Countries’ Exports of Manufactures and Primary Products,” World Development. Vol. 11, No. 9, Oxford: Pergamon Press, September 1983.
Love, J., “Export Instability: An Alternative Analysis of Causes,” The Journal of Development Studies. Vol. 21, No. 2, January 1985.
Mullor-Sebastian, A., “A New Approach to the Relationship between Export Instability and Economic Development,” Economic Development and Cultural Change 2, January 1988.
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I am grateful to Vicente Galbis, Mohsin Khan, Jonathan Levin, Donald Mathieson and Wilhelm Nahr for comments. Marcia Cruz provided efficient research assistance.
Thus, if in period I a country exports two products, A and B, with A representing 80% of total exports and B 20%, and in period II the proportions change to 70% for product A and 30% for product B, the country’s exports are said to be more diversified in period II, even though the number of products exported is the same in both periods.
To a limited extent, industrialized countries could also have some difficulty breaking into the oligopolistic markets for growth products, and their new exports of these products may have somewhat higher instability.
Several equations were run relating indices of export instability of growth products to proxies for economic development and gave good fits. One of them was:
where Is the instability index, GDP is gross national product, and MNF is the percentage of manufactures in total exports. The corresponding equation for mature products was:
The empirical research was done using two instability indices for two time periods: 1965-80, and 1970-80. All references here are to the 1965-80 period. The two indices gave very similar results.
Although throughout the paper references to a “product” are made for brevity, it is to be understood that statements actually refer to “groups of products.” Thus, synthetic fibers are treated as one product but comprise 11 Standard International Trade Classification (SITC) items disaggregated to the four-digit level; similarly, natural fibers comprise 21 SITC items.
Two instability indices were computed. The two gave remarkably similar results.
The degree of homogeneity of products in available trade data was a problem in testing the hypothesis. The data used had the lowest level of aggregation (either 4 or 5 digit in the SITC) available in internationally comparable trade data, but the products still were not totally homogeneous in each category. However, care was taken to select product categories that appeared to contain either a totality or a clear majority of growth or mature products.
The instability index is the standard error of the estimate of a regression linking exports to time, In Xt = a + bt + et, where Xt represents exports; t, time; and e is the disturbance term. The time period varies slightly for some products due to data availability; for most products it is 1966-1980.
Data problems resulted in a low number of observations for each type of machinery exports and in time periods that are slightly different for each.
Subcontracting can be loosely defined as an arrangement whereby a firm, usually located in an industrialized country, contracts with another firm, usually located in a developing country, to manufacture goods that the firm in the industrialized country will sell for its own account.
For a definition of subcontracting, bibliography on the subject, and a detailed study of subcontracting in Tunisia, see Gheza 1982.
Calculations based on U. N. trade data made by the author.
For a study of 24 developing countries documenting the results of diversification on export instability, see Love 1983. In general, increased shares of nontraditional exports were accompanied by greater increases in export instability.
“… diversification… has tended to be equated with the expansion of manufactured exports on the grounds that earnings from manufactured goods can be expected to be less volatile than those from primary products and that the intercorrelation between earnings from a manufactured product and a primary commodity is likely to be less than between earnings from pairs of primary commodities.” Love 1983, p. 787.
Instability during the 1966-80 period was compared with instability during the 1970-80 period, instead of comparing instability during the 1966-70 and 1971-80 periods, because the regressions run for the 1966-70 period to calculate the instability indices would have had only six observations. To compare instability during the 1966-80 with the 1970-80 period, if instability was higher (lower) in 1970-80 than in 1966-80, then instability was lower (higher) in 1966-70 than in 1970-80.
International Financial Statistics. Supplement on Trade Statistics, Supplement Series, No. 4, International Monetary Fund, Washington, D.C., 1982.
Data are for the 1970-80 period rather than for the longer 1965-1989 period because there were no export data available for some developing countries in the sample prior to 1970.
Data are for the period 1965-80.
Other patterns would involve shifting resources from the production of traditional exports to the production of new exports of either growth or mature products, or shifting resources between the production of traditional exports to achieve diversification without the addition of products to the basket of exports. These patterns will not be discussed here because the essence of the discussion of the two basic patterns can also be applied to them.