Export diversification and its effect on economic growth: Evidence from Turkey

In the last quarter of the twentieth century, increasing globalization trends together with rapid progresses in information, communication and transportation technologies accelerated the global integration process and since then, radical changes have been observed especially in the foreign trade strategies of developing economies. During the same period, the policies aimed at increasing export performance in Turkey have become one of the important components of the development strategy and export-oriented growth strategy has taken the place of import-oriented industrialization policy. In this context, parallel to the general trend in the economic literature, the factors determining the export performance in Turkey and the channels in the export-growth nexus have become one of the widely discussed topics in the literature. Although there is a general opinion in the theoretical and empirical literature that increases in export volume increase economic growth performance, the issue of what type of export structure stimulates economic growth appears to be an ideal research subject. Unlike the traditional foreign trade theories which emphasize the importance of specialization in exports and the accumulation of capital accumulation, the recent foreign trade theories, which are mostly confirmed in the empirical literature, assert that export diversification may play an important role in ensuring the stability of export revenues and thereby reducing macroeconomic fluctuations by constituting an insurance mechanism against possible price and market fluctuations. In this context, this study aims to provide empirical evidence on the effect of export structure and composition on economic growth in Turkey. Indeed, the determination of suitable foreign trade strategies for sustainable economic growth is only possible with the true understanding of this mechanism. For this purpose, in this study, we examine the effect of export diversification on economic growth in Turkey over the period 2002q1-2019q4 by employing three different indices developed for the calculation of the export product diversification (Herfindahl-Hirschman, Gini-Hirschman and Theil Entropy indexes). Specifically, we analyze the dynamic relationships between economic growth, fixed capital formation, labor force and export diversification through the cointegration analysis based on the autoregressive distributed lag (ARDL) bounds testing approach. The empirical evidence confirms the positive effect of export product diversification. Keywords: Export Diversification, Economic Growth, Herfindahl-Hirschman Index, Gini-Hirschman Index, Theil Entropy Index