Correlations-Adjusted Export Market Diversification

Abstract

This paper introduces new export market diversification indices incorporated with correlations of business cycles among export partners to identify the actual effects of export market diversification on export instability. Three existing export market diversification indices reflect the dispersion level in terms of the number of export partners and their export shares, without a clear control for correlations among export earnings from export partners. In addition, they are underestimated or overestimated in illuminating the negative relationship with export instability. Correlations-Adjusted export market diversification indices help their normalization. Their superiority is also proven through the regression analysis in investigating the effects of export market diversification on export instability.

Keywords

• Correlations-Adjusted Export Market Diversification
• Export Instability