ABSTRACT
Is there any systematic relationship between export diversification and economic growth in Latin America? If diversification is good for growth, are there any particular policies which encourage it? It is widely believed that excessive specialization in individual primary products, such as coffee, tin, copper, fruit, and petroleum, has harmed Latin American economic growth. Countries dependent on a single primary export are exposed to greater price risk and (for non-extractive exports) agro-climatic risk than are countries with a diversified export portfolio, which may lead to an unstable supply of foreign exchange and constrain investment. Furthermore, if the worldwide distribution of technical advances fluctuates unpredictably from industry to industry over time, it may be that countries which can successfully produce (and export) a wider range of goods are better equipped to exploit a larger share of the expanding technology pool, and may also have more extensive forward and backward linkages to technologically progressive sectors. For all these reasons, some form of export diversification may potentially be helpful to growth. More controversial, but long taken seriously in Latin America, was the Prebisch/Singer hypothesis that the terms of trade turn secularly against primary product exports. All of these arguments may be advanced in support of the notion that export diversification may potentially be beneficial to economic growth. Nonetheless, systematic attempts to assess this hypothesis are difficult to identify. The present effort hopefully provides some modest excuse for submitting economists to yet another 'mindless cross-country regression' in the neoclassical tradition.
