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Export strategy: quality or quantity?

August 2, 2019

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Aigerim Kushumbayeva

Analyst

The need to support exports for economic growth is not in doubt, but it is strategically important to determine the right direction for its development. There are not many alternatives – to focus resources on the quantity (increase the volume) or quality ("complicate" the structure) of exports.

In search of a quick answer, we have divided the world's countries into a matrix (2017):
1. "Quality" is in vertical direction, measured by the Economic Complexity Index (ECI);

 2. "Quantity" is in horizontal direction - the country's per capita exports (logarithm).

Conclusions:
1. There is a positive correlation between the quality and quantity of exports.

2. There is a geographical grouping of countries. Developed Europe is concentrated in the upper-right square, where both the quality and quantity of exports are high. On the opposite diagonal, Africa (below the Sahara) with the lowest values in both dimensions. South America and most of the East Asian and CIS countries are in the center, with average quality and quantity indicators. Middle Eastern countries, which are also exporters of raw materials, have large export volumes with low "complexity".

3. Kazakhstan is below the conditional trend. With the current quality, the country exports a significant volume. Conversely, at current volumes, the complexity of exported goods and services is not high enough.

4. The desired goal is the upper-right corner. Higher quality and larger volumes.
In the current situation of Kazakhstan, the strategic direction is to improve the quality of exports (its "complication"). If the volume of raw materials increases further (the trajectory towards the Middle East), there is a risk of "displacement" of "complex" products and a drop in ECI.

Switching to more "complex" exports will allow you to quickly move into the same group with the developed world.

Explanations:
1. The economic complexity index is calculated on the basis of the range of exported goods for which the country has a sufficient share in the world market.

2. Exports per capita include goods and services.

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