The patterns of export product diversification and its determinants in four East African countries. Particulary in case of Ethiopia

Master's Thesis, 2016

55 Pages


Table of Contents



List of Tables

List of Figures



1.1. Background of the study
1.2. Statement of the problem
1.3. Object of the study
1.3.1. Major objectives
1.3.2. Sub-objectives
1.4. Hypothesis of the research
1.5. Scope of the study
1.6. Definition of terms

2. Reviews of literature
2.1. The Concept of Export Diversification
2.2. Theoretical Review
2.1.1. Ricardian Model
2.1.2. Heckscher Ohline Model
2.3. Empirical literature
2.3.1. Export product and export revenues earning in Developing countries
2.4. East Asian countries experience on export product diversification
2.4.1. Developed Suitable policies
2.4.2. Strong Saving Culture

3. Methodology and data sources
3.1. Research design
3.2. Source of data
3.3. Model Specification
3.3.1. Export diversification Model
3.3.2. Determinants of Export diversification Model
1. Gross Domestic Saving
2. Exchange rate
3. Foreign direct investment
4. Inflation
5. Per Capital GDP
6. Trade openness

4. Analysis and interpretation of data
4.1. The patterns of Export diversification in some of East Asian countries
4.2. Descriptive Statistics for dependent and independent variables
4.3. The regression Analysis in four East African countries
4.4. The Trends of Export Product Diversification in Ethiopia
4.4.1. Trends of Saving and foreign Direct Investment
4.4.2 The trends of export product diversification and foreign direct investment
4.4.3. The trends of coffee and other six major export products share
4.4.4. The trends of primary and manufacturer export product share

5. Conclusion and policy recommendation
5.1. Conclusion
5.2. Policy recommendation


Appendix A
Appendix B
Appendix C
Appendix D


First and foremost, I would like thanks almighty of God and St. Marry for helping me to have Strength from the screening of that tough scholarship competition to the end of my study in this new environment.

Next to God and St. Marry, I would like to express my deep sense of gratitude to my supervisor professor Mariusz K.Krawczyk for his endless support from the beginning to the end of this program by giving his precious time as I needed. He has special place for successfully completing of my study. I will never forget his special assistance and advices provided me to adapt in the new environment.

I would also express deep sense of gratitude to my Sub-Supervisor professor NISHIKAWA Yoshiaki for his endless support for my study through sharing his experience about Ethiopia. Beside his fruit full comment and suggestion, I have learned a lot in his agricultural economics classes and seminars I have attended based on his recommendation and invitation. Those experiences has special place for me to know the problem of farmers in developing countries, food security, and food severity and its problem all over the world.

My special thanks also extends to my sponsor Japan Internati onal Cooperative agency (JICA) for facilitating such an interesting African Business education program for youth. Beside the master program, it has helped me to know the Japanese working culture, their strength, dedication and Commitment they have to achieve their Mission and punctuality of their train and people. I have observed practically as “Time is money” in Japan. This is special input for my future life. In addition, I would like to thanks JICA and JICE staff members for the care, support, special treatment and their prompt response when I asked some helps and information during my study. All of them have valuable contribution for successful accomplishment of my two years master degree program.

It is my privilege to thanks all my family for their constant encouragement during my stay in that new environment. Particularly I would like to thanks my lovely daughter Siket Gebeyehu for the love and treatment she cost during my study. Dear my daughter we know each other only by photo. Sometimes when I heard your sound in phone and think about you, I was in trouble. But everything accomplished fruitfully, now the time is approaching to compensate the love and treatment you cost for me. Dear all my family with help of almighty of God all your effort will be great full in the near future.

I would also like to thanks to all Ryukoku University graduate school of Economics staff members for their constant encouragement and guidance they did to know about Japan and Japanese during my stay there. All of them were treated me like their younger brother. I would particularly thanks professor Tajiri and his wife for their special care and treatment they had for me. They have special contribution for me to know about Japan and Japanese food and culture easily.

Last, but not least, I would like to express my deepest gratitude to all my friends for their good wishes, endless encouragement, and supports morally and materially during my study.

List of Tables


Table 1: Descriptive statistics for export product diversification for some of East African and East Asian countries

Table 2: Data source and expected sign for explanatory variables of export diversification

Table3: Descriptive statistics for East African countries on export product diversification

Table 4. Descriptive statistics of variables for East African countries

Table 5. Regression Result of Export product diversification for East African countries based on GLS Random Effect model

Table 6. Partial correlation of dependent variables (the number of export products) with independent variables

List of Figures


Figure1. Trends of primary products export price in international markets

Figure 2: East African Countries export revenues earning and their trade balance

Figure3: East Asian export product diversification based on HHI

Figure4: East Asian countries on export performance and Trade balance

Figure 5: East African countries Export product diversification based on HHI

Figure 6: Export product diversification and saving growth rate

Figure 7: Export product diversification and foreign direct investment growth rate

Figure 8: Export share of coffee and other five major export products for the years 1995-2014

Figure 9: percentage share of manufactures and primary products in Ethiopia for the years 1995-2014


Abbildung in dieser Leseprobe nicht enthalten


This paper assesses the patterns of export product diversification and identifies its determinants in four east African countries particularly focus on the case of Ethiopia. In addition to this, the study develops lessons from East Asian countries as best experience to know the way they have followed to achieve export product diversification with less than three decades. The research conducts Herfindahl-Hirschman index to see the degree of export product diversification, balanced panel data to examine determinants of export product diversification using GLS random effect model and descriptive statistics for the year 1995-2014. The statistical data collected from WDI, UNCTAD, ERCA, NBE and ADI data bases. The study also conducts Huasman specification test to select the best model for the study and Breusch-Peagan test to check the existence of heteroscedasticity and used one year lag-values in log form to detect the endogeneity problems and some of the variables like labor force and saving effect may not observed immediately on diversification. According to the finding, the HHI for east African countries export product diversification shows as they concentrated on few products. However it shows an improvements from year to year with gradual changes. In 1995-2014 Ethiopia, Rwanda and Ugandan export highly concentrated but since 2001 Ethiopia and Uganda export performance shows moderately improved compare to the previous years. The regression result of the study suggests that exchange rate, gross domestic saving, inflation, PGDP, openness to trade, labor force and foreign direct investment suggests as they have positive contribution to export diversification. Likely, the regression result of labor force showing the highest relatively compare to other explanatory variables. In Ethiopia six major export products constitutes 72% of total export; even only coffee covers 22.5% of export earnings for the year 2014. Average of Ethiopian manufacturers export products covers 9% of total export earning within 20 years. This trend indicates as the main source of Ethiopian export comes from primary products. In Ethiopia saving rate showing the lowest even compare to majority of SSA and foreign direct investments also showing high fluctuation from time to time. The paper particularly focuses on these two explanatory variables by considering as they are an engine to expand investment and export product diversification. In general Ethiopian Export product diversification showing an improvement however, the diversification mainly focuses on production and export of primary products.

CHAPTER ONE Introduction

This chapter contains background of the research, statements of the problem including the basic research question and major and sub-objectives of the research. In addition to this, it also explains the hypothesis and significant of the research, and organization of the paper that indicates how this research paper organized.

1.1.Background of the study

The countries in which their economy depends on few commodities deemed to have lower growth prospects because of unfavorable characteristics on their export in the world markets and negative feature of natural resource extraction and production. On this regards, at the end of 1970s the fall in prices left many commodity dependency countries, especially Africa with a large amount of debts and decline in flow of foreign resource to finance them in 1980s (OECD, 2003).

In addition, different research paper has shown as export earning of most developing countries in general and African countries in particular heavily depends on very few primary commodities. On this regard (SAMEN, 2010) explained as the exports of primary commodities are extremely vulnerable to external shocks. This factor makes developing countries policy makers facing challenges on expanding export revenues and to have stable and sustainable export revenue earning.

Over the last decades Sub-Saharan African export has dominated by few primary products like coffee, gold, oilseed, vegetables and, hide and skin. Those products constitutes above 80% of total export of the countries (World Bank, 2006). It indicates that the major part constitutes agricultural products and production of those agricultural products are depends on rain feed agriculture which are vulnerable on various environmental related risks.1

Sub-Saharan African countries economies surrounded by different internal and external problems which led to stay with low level of capital accumulation. Dependency on few primary commodities, low investment level both domestic and through FDI and low level of infrastructure development considered as the major factors of SSA poverty trap (UNU, 2006).

Considering the problem linked with dependency on export of primary commodities in developing countries in general and Sub-Saharan countries in particular needs strong policy action and commitment by the concerning bodies to diversify their export earning to different baskets of goods depending on their potential and resources they have. On this regards, Kai Guo and Papa N’Daiye (2009), mentioned as diversifying export, through value addition on the existing export commodities and involving in the international market with new products help to minimize the risk associated with volatility of their export earnings.

Like other developing countries, the main agenda of Ethiopian government has been to achieve accelerated and sustainable economic growth. Ethiopian Economic Association working paper stated as; currently the country gives special attention for economic development having different agenda`s. External trade is one area that has been emphasized among the varies agendas of Ministry of Finance and Economic Development for the year 2002/03.External trade is the most important sector to generates foreign exchange needed to finance imports of essential goods and services for the economy and to promote the economic performance of the country (EEA, 2013)

However, Ethiopian export heavily depends on very few primary products; which constitutes above 90% of the total export earnings. As stated on the World Bank Journal (1991), the prices of these primary products fluctuate from time to time and led lower and unstable export revenues earning. Unless the countries diversify its export earnings, it is hard to achieve sustainable economic growth and reduces external debts

1.2. Statement of the problem

The years 1960s was the year of most African countries got their independence, at this time their per-capital income fairly comparable with East Asian countries. In those periods researchers and scholars gave much growth expectation to SSA because of the availability of abundant natural resources; but the reverse was happened. East Asian countries registered fast economic growth with less than three decades through using export diversification policies to a wide range of export products. But sub-Saharan countries stayed on export of narrow range of agricultural and natural resource based primary products (Yokoyama, Kenji and Alemu, 2009).

Most developing countries financial sources to import capital goods are heavily depending on the export revenues earning from their primary commodities. In the world market the price of primary products heavily fluctuate timely and the range of developing countries export is concentrated on few products. Those factors led instability of the foreign exchange earnings, experienced huge negative trade balance and faced to buy capital goods.

Accordingly, Ethiopian export revenue earnings heavily depend on limited primary products. Coffee, chat,2 gold, oilseeds, raw hide and skin are the most dominant export products of the country for more than half century. Currently it includes leather and leather products and flowers. Dependency on few types of products cause the country to huge negative trade balance and low level of export earning even when it compare with majority of other sub-Saharan countries.

Observing these problems, the paper identifies the factors hindering export product diversification that will help for policy makers to take policy action.

1.3. Object of the study

1.3.1. Major objectives

In this study the paper clearly state the level of export product diversification and its determinants that forced to stay on narrow bases of export products in some of east African countries in general and Ethiopian case in particular.

1.3.2. Sub-objectives

This research paper addresses the following sub-objectives:

1. It states the degree of East African countries export diversification using Herfindah- Hirschman index.
2. It clearly explains the major challenges that hinder the diversification of export products in those countries under the study with support of different literature.
3. It states the patterns of export product diversification with support of different statistical evidences in case of Ethiopia.
4. Lastly the paper give policy recommendation for policy makers and to concerning bodies based on its major finding and successful experience of East Asian countries on export diversification.

1.4. Hypothesis of the research

The progress of Ethiopian Export revenues earning and its growth rate is the lowest There is a low level of product diversification in East Africa in general and in case of Ethiopia in particular.

Labor force, per capital GDP, exchange rate, gross domestic saving, foreign direct investment, inflation and degree of trade openness have positive effect on export product diversification and the paper identifies that, these variables are determining export product diversification in four East African countries.

1.5.Scope of the study

This research work explained the patterns of export product diversification and its determinants in four East African countries: Tanzania, Ethiopia, Uganda and Rwanda. All those countries have similarity in terms of their economic activities. Agriculture is the backbone for their economy and their major export comes from agricultural and mineral products. In addition, they have almost the same climatic zone and located on the same region called East Africa.

1.6. Definition of terms

Trade openness: Is the total removal or reduction of trade barriers between countries. In another way it mean liberalization of trade for free movement of their products which encourage firms for free movement of their products to previously protected sectors that allows countries to get intermediate goods and technology to achieve economic success. One of the common measurements is the trade ratio which is calculated as: (Export + import)/GDP.

Iquib: is a social-association established by a small group of people in order to provide substantial rotating funding for members in order to improve their lives and living conditions, and can be characterized as traditional financial associations. It can be temporary or permanent, depending on the needs of the members (Ayele, 2003).

Idir: - It is traditional social association to provide money and materials for funeral ceremonies of its members and member ’ s family. It seems to be traditional insurance that members are paying regularly fixed amount of fees most of the time per month and attending funeral ceremonies. This association is formed by the people living in the same area and it is the long term social association. As the owner of the association die, one of the family members will continue the membership. But different areas have different rule and regulation. This time beside attending and supporting the funeral ceremony, they are saving a lot of money and involving on different investment activities like urban agriculture, providing education and health services and on trade sectors (Woubzena, 2013)

CHAPTER TWO 2. Reviews of literature

This chapter deals on reviewing theoretical and empirical frame works of export product diversification based on different scholars theories, institutional articles and journals. In addition to this, it includes East Asian best experience on export product diversification from empirical researches with support of some statistical evidences.

2.1. The Concept of Export Diversification

Different scholars defined export diversification in variously way; however the main idea is the same. Samen (2010) defined it as the change in the composition of a country’s existing export product mix or as the spread of export production over many sectors.

Herzer, D. and Nowak-Lehnmann, D.F (2006), and Matthee, M. and Naude, W. (2007) defined as horizontal export diversification means increasing the number of export commodities, in other way, Matthee, M. and Naude, W. explain vertical export product diversification as a shift in the composition of exports from primary to manufacturing products or the starting of the country to processing and exporting value-added products from commodities that would have previously been exported in raw form.

The above definition shows as export product diversification categories into horizontal and vertical diversification. When it says horizontal diversification, it mean increasing the number of export commodities within or adding new commodities on existing export baskets within the same sector; Whereas Vertical diversification is focusing on processing of domestic manufactured goods entails a shift from primary sector to the secondary or tertiary sector. Vertical diversification can expand market opportunities for raw material and help to create well organized forward and backward linkages of different industries which enhance growth and stability of the countries. Compare to horizontal diversification, vertical diversification contribute a lot on macroeconomic stability of the countries (Samen, 2010).

2.2. Theoretical Review

According to Krugman, P., Obstfeld, M., and J. Meltiz. (2012) on their books of International economics theories and policies stated as countries engaged on international trade to contribute their gain from trade and to attend economic of scale on their production.

Recently, different scholars and institutions are writing as developing counties export product concentrated on very few risky commodities. To minimize those risks, diversifying export product means having broad export categories which are crucial point to have stable export earnings and to preserve sustainable economic growth. However, the concept of export diversification seems to be contradicting with different international trade theories.

2.1.1. Ricardian Model

This theory developed in the early 19th C by the British economist called David Ricardo. He was one of classical economist which focused on how countries can achieve efficient gain from international trade based on the theory of comparative advantages. The theory stated that:

“ Trade between two countries can be benefits both countries if each

Country ’ s exports the goods in which it has comparative advantages. ”

Ricardian Model has been known with the production of two products using the same factor of production into two different countries.3 According to the theory, the ratio of the labor force needed to produce the same products in different countries is different. It means, one country have an absolute advantages in producing one product compare to the second country. Each country maximizes their gain from trade based on producing and trading the products which have an absolute advantage on production of those goods. In this way, Ricardo Model is against diversification of products; rather it explained the importance of specialization on export products.

2.1.2. Heckscher Ohline Model

The model focused on international trade which developed by two neoclassical Nobel Prize winner economists called Eli Hechscher and Bertil Ohlin (Krugman, 2012). Like the Ricardian Model, trade occurs because of countries comparative advantages in production and trade off goods based on their difference in factors of production (both Labor force and the technology) they are using on production. The main contents of the theory stated as:

“ The country that is abundant in a factor exports the

good whose production is intensive in that factors ”

However, the traditional trade theories seem to contradict with the current theories which encourage diversification of export products. Ricardo and some other traditional economists wrote theories of comparative advantages. Those traditional trade theories encourage the countries to specialize their export products based on their comparative advantage.

According to the above theories, developing countries have comparative advantages on production of agricultural and mineral products, but this products showing high fluctuation in their prices in international markets and also the production of agricultural products are depend on favorable weather condition. So, expanding baskets of export commodities help to solve the problems related to price instability and problems occurred related to unfavorable weather condition in order to secure stable export revenues earning. As the price of some products fall in the international markets, at least they can compensate by other commodities and can keep stable export earnings.

In addition to maintaining stable export revenues earning, export product diversification also use to minimize the risks related to politics4 and economics. As Samen (2010) stated economic related risks classified into the short run and long run time path. Volatility and instability in foreign exchange earning occurred in the short run has an adverse macroeconomic effects on (employment, growth, import and export capacity, investment planning, foreign exchange cash flow, inflation, debt repayment etc); and , secular and unpredictable declining terms of trade trends in the long term.

Economic Commission for Africa in its annual report stated that diversification help to build competitive economy through producing different products to the international markets and strengthening exporting countries trade gains (ECA, 2007). Likely, it mentioned as diversification is the best and most important policy action in the recent years for low income African countries which depends on very few export commodities and high volatility of price on their export commodities and export revenues earning.

2.3. Empirical literature

There have been numerous empirical researches done on export diversification both in developed and developing countries by different scholars at different time. In this section the paper reviews empirical researches from professional journals and articles which have been written at different time.

Lin, J.J. and Saborowski, C. (2012), explores how Syria has experienced export diversification using data for the year 2001 and 2008. The Syrian government in the year 2000 made policy reforms on different institution which have direct relationships for trade liberalization. Since that policy reform, the country starts to expand export varieties to their trading partners’ significantly. The statistical result of diversification for the year 2001 to 2007 based on the Herfindahl Index falling from 0.62 to 0.14. These figures indicated that the Syrian export has been moved from highly concentrated on very few products for the year 2001 to moderately diversification in the year 2007. Its export categories were fall under labor intensive agricultural and textile products.

Elhiraika, A. B., and Mbate, M. M. (2014) explained on their research paper for 53 African countries export diversification assessment in the years 1995-2011. The finding of the paper indicated as the actual mean values of HHI for African countries was the highest when it compare with Europe and emerging countries. In case of Sub-Saharan countries, their export extremely concentrated on very few products even compared with the average of the whole African countries. The same paper has stated as African countries baskets of their products concentrated on primary commodity export. The share of primary export products for the year 1995 to 2009 was increased from 75% to 81%. These figures indicated as vertical diversification of African countries have been worsened and they were concentrated on baskets of risky products which showing price fluctuate in the world markets.

Bebczuk, R. N., & Berrettoni, D. (2006) mentioned the importance of export diversification for countries around the world based on their empirical research analysis for the year 1962-2002. This paper has showed the trends of diversification using HHI. The index in 1970 for South American and Africa countries were 0.354 and 0.268 respectively. In the year 2000 the aggregate mean values of HHI for South American and African countries fall to 0.206 and 0.20 respectively. The result of the index for African countries was indicating slow change compare to Latin American countries. However, countries of North America, European and East Asia had diversified export baskets.

Klinger, B., & Lederman, D. (2006) highlighted the importance of diversification for developing countries for the positive returns of their export revenues earning. The paper mentioned as countries diversified their baskets of export with new products help to sustain their export earnings by selling their new products without competition. This trend encourages strong innovation and imitation of new technology to sustain economic development in the long run. Likely, Carrère, C., Strauss-Kahn, V and Cadot, O., (2007) explained the patterns of export diversification for 159 countries using 17 years panel data. They mentioned as concentration of export on limited products, cases volatility of export revenues earning, low economic growth and deterioration of terms of trade. The finding of the research identified as diversification has U- shape. It means that countries export products concentrated on few commodities as they have low income level. Those countries by taking different policy action they diversify baskets of their export to reduce price volatility related risks. Lastly, as the countries more developed, and have both skilled manpower and advanced technology, again concentrate on production of high values export based on their comparative advantages. In general this paper stated the importance of export diversification for low income countries in order to bring sustainable growth and development.

Habiyaremye, A., and Ziesemer, T. (2006) have been written about the factors for dependency on primary commodity. This working paper explained as dependency on very few primary baskets of export are one of the factors for poverty trap in developing countries in general and sub-Saharan countries in particular. According to these researchers, export diversification in low income countries bounded by many challenges. : Low level of human capital, inadequate and weak development of infrastructure, insufficient finance to expand investment and low level of innovation, research and development.

Bonaglia, F., & Fukasaku, K. (2003) stated the degree of commodity dependence and export diversification for 98 developing and low income countries from the year 1966-2000. According to the finding of the paper, at the end of 1960s the mean values of primary products for overall and Sub-Saharan countries were 90% and 97% respectively. After 30 years the baskets of the primary product export stayed the dominant among majority of the countries with exception of Asian countries; but the situation were worse for sub-Saharan countries.

Doha ministerial declaration forwarded low income countries to diversify their export and stimulate their trade through giving technical assistance and capacity building. This policy recommendation will help the countries to secure their full benefits from globalization and enables them to involve effectively on the international trade.

The Doha Ministerial declaration on paragraph 42 stated as follow:

“ The integration of least developed countries into the multilateral trading System requires meaningful market access, support for the diversification of their production and export base, and trade related technical assistance and capacity building ”

2.3.1. Export product and export revenues earning in Developing countries

The trends of most developing countries export are concentrated on very few primary agricultural and mineral products. They are experiencing “monocropping export”5 systems. This trade system forced the countries to experienced export revenues earning volatility and vulnerable to huge negative trade balance.

Different researchers stated as export concentration deteriorating the terms of trade especially for developing countries. Accordingly, Dogruel, S., and Tekce, M. (2011) (2010) and Derosa (1992) on their paper stated that concentration on very few primary export products forced the countries to experience volatile export revenues earning and this led them not to register significant growth in their current account balance. As different researchers mentioned, this is because of fluctuation of commodities prices in international markets.

In other way the developing countries agricultural export products depend on rain feed agriculture. The existence of bad weather condition in one harvesting season leaves the countries to experience huge export fluctuation. To solve such problems different researchers promote diversification of export commodities to stabilize terms of trade especially for developing countries whose export product concentrated on very few primary commodities.

Most African countries since they got independence; their export earnings heavily depend on traditional products6. Those factors caused countries not to have significant change on values of export revenues earnings. Dijkstra, T. (2001), (UNCTAD, 1996; UNDP and World Bank, 2000) and Munemo, J. (2007) recommended policy measures for African countries on export commodities diversification from traditional products to other non-traditional commodities like flower, meat, fruits and vegetables. Such kind of diversification is considered as horizontal diversification which enhances export performance through overcoming problems of inelastic and declining demands of traditional commodities.

Sørensen, B. E., Kalemli-Ozcan, S., & Yosha, O. (2000) mentioned that a high degree of concentration on very few traditional commodities vulnerable to risks associated to external shocks on exporter countries. Majority of sub-Saharan countries experiences such kind of challenges on their export commodities. So, increasing export diversification is the critical solution to mitigate such kind of risks for developing countries in general and sub-Saharan countries in particular.

Almost all developing countries export earning depends on very few traditional products. These trends left those countries under low level of their export revenues earning compare to the countries which have diversified baskets of export. Figure 2A below indicates the performance of export revenues earning in four East African countries on five years average bases from the year 1995-2014. As shown on the figure there is an improvement on their export earnings; but it is the still the lowest. Accordingly, figure 2B indicates their trade balance on the same years. The countries export earnings were very much lower than their import performance; then these trends exposed the countries to have huge negative trade balance and accumulation of government depts.

In general, the low level of export product diversification led to low level of export earning as shown on figure 2A and forced to have negative trade balance and shortage of finance to buy capital goods in order to expand domestic investment.


1 Crop and livestock performance depend on biological processes that are affected by the weather, and by pests and diseases. Low rainfall or drought may lead to low yields. Heavy rains could damage or even wipe out crops. Outbreaks of pests or diseases could also cause major yield losses in crops and livestock(FAO, 2008 P.6)

2 Chat is a stimulant plant that has been chewed and enjoyed socially and speeds up mind and body. It is mainly used in the Horn of Africa and Arabian Peninsula (Kenya, Ethiopia, Somalia, Djibouti, and Yemen).

3 The two products are cheese and wine, and the country will specialize in production of one product (eg. Cheese), if the relative price of that product (cheese) exceeds its opportunity cost in terms of other product eg wine (Paul R. Krugman , 2012)

4 Politics related risk can happen on dependency of primary commodity export through worsening unequal distribution of resources to the community raises risk of civil war in fragile states and associated with poor governance (Solomon, 2010).

5 Monocropping export means a practice of producing and exporting of single crop from year to year. This may raise the risk of crop failures even though the average returns are higher. This can be because of the behavior of export crops that often takes a long time to mature and the outcomes may turn to be less profitable compare to the expected (Benjamin H., 1992)

6 Traditional products are the types of export items like coffee, Cocoa, cotton which helps as the main source of export in most developing countries. As World Bank (2000) stated, SSA traditional products are jeopardize growth and industrial prospect of the region and the income inelasticity of demand for those goods are showing low.

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The patterns of export product diversification and its determinants in four East African countries. Particulary in case of Ethiopia
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