Export diversification: Export diversification, by definition is the changing of a country's export structure. This can be attained by changing the existing basket of commodities or by embellishing them through innovation and technology. Dennis and Shepherd (2007) define export diversification as widening the range of products that a country exports. As a matter of fact, export diversification can take two forms, namely, horizontal and vertical. Export diversification has different dimensions and can be analysed at different levels.
Horizontal
diversification causes changes in the primary export mix in order to reduce the
effect of the fluctuation of global commodity prices. It also implies that the
number of export sectors has increased. This reduces the dependency on a few
sectors to lead export-oriented growth.
On the
other hand, vertical diversification involves contriving further uses for
existing and new innovative commodities by means of value-added ventures such
as processing and marketing. Vertical diversification occurs when the export
mix of a country shifts from primary products to manufactured products.
Justification: Export is the lifeline of the economy of Bangladesh. The most important
contributing sector is the exporting sector in the GDP. But, overdependence on
a few products or on a single product is not a wise decision. For sustenance of
business, it needs diversification of both export products and export
destinations. With an export of only $0.36 billion in fiscal 1973, the country
has managed to increase it to $30.2 billion by the end of fiscal 2014. Firstly,
let us take a quick look at some of the facts regarding exports of Bangladesh.
The exports are largely dominated by readymade garments, whose share was 81.2
percent in FY2014. Around 96 percent of all exported goods are manufactured
commodities. With about four million workers and 81.2 percent of total export
earnings, a lot of the country's fate depends on a single sector. High export
concentration on the garment sector can make the economy vulnerable to shocks.
However, if
the export basket contains several commodities then the probability of all of
them suffering an adverse shock simultaneously is small. Any adverse outcome in
the export of one good could be cushioned by the export of other commodities
thus reducing the impact on export revenue and balance of payments.
Export diversification
can help increase overall exports and thus growth rate of the economy.
Bangladesh has a high endowment of labour and the benefit of labour-intensive
manufacturing which it can take advantage of. However, addressing domestic
problems like land acquisition, energy and infrastructure inadequacy is key.
Moreover, political stability is vital for uninterrupted flow of production as
well as giving signal to the international buyers of the country's reliability.
Though it may be a challenge, with appropriate policies, the country will be
able to diversify exports and increase its overall exports and hence economic
growth rates.