Diversification plays a major role in the development and growth of an economy. According to some prior research, diversification contributes to increasing the productivity of factors, strengthening investment and stabilizing export revenues. The United Nation’s Economic Commission for Africa’s report on diversification in Africa (2006) identifies physical factors, public policies, macroeconomic variables, institutional factors and access to markets as five major categories of variables affecting that significantly drives the course of the economic diversification processin a country. Specifically according to the report, the physical factors include The study further identifies investment, growth and human capital; whereas the public policy variables centre on as physical factors indicators and fiscal , commercial and industrial policies as public policies variables. The link between Moreover, macroeconomics indices and diversification is hinged on factors such such aas foreign exchange rates, inflation rates and trade balances; while a similar link with ; and iinstitutional dynamics variables sareuch as gover the quality of prevailing governance mechanisms, including, the safety of the the investment environment and the security situation are further indicators that promote export diversification. The degree of openness to the trade of goods, services and capital (removal of tariff and non-tariff barriers), access to bank or market financing also contribute significantly to the growth of export in any society.
Diversification therefore entails spreading the means of revenue generation into different areas of production, investment, trade and term of trade so as to make the economy more competitive, higher productive and less exposure to external shocks. In the context of the domestic economy, diversification would mean expanding local productivity to effectively accommodate the primary, secondary and tertiary levels of the economy (Hamed et al. 2014). In the area of international trade and business, diversification implies the diversification of a country’s export portfolios in a way that induces foreign exchange earnings and reduces the country’s dependence on imported goods and services (Agosin, 2007; Awang and Seigel, 1994; Ferrantino et al. 1987; and Hirsch et al. 1971). Africa, for instance can diversify her economies by strengthening non- traditional sectors, exporting their range of products and engage herself with new economic and development partners. These in addition to good governance can help to reduce poverty and promote human and societal development. Hamed et al (2014) define diversification to mean increasing the number of export goods and decreasing the dependency on a single source of income. Awang and Seigel (1994) and Ferrantino et al (1987) defined it to mean the development of export portfolio of a country from primary products to industrial products. In another group of studies, Agosin (2007) and Hirsch et al (1971) define diversification as not specializing the export portfolio in a limited number of export goods. They argue that the larger the number of export goods in an export portfolio, the more diverse the export of a country would be.
In today’s modern economy for instance, various forms of diversification exist. There are export diversification, import diversification, horizontal diversification, vertical diversification, economic diversification and so onWithin the sphere of domestic economic diversification and export diversification, the central aim usually is to induce revenue flows, and spur economic growth and engender development (. Elhiraika and Mbate, (2014) reports that the best established form of diversification must for instance be capable of inducing revenue, and spur economic growth and development. That is to say that anyCountries apply diversification strategies as a way of achieving diversification effort must contribute in macroeconomic stability, must drive competitive trade and exchange rate, must ensure less exposure insulating the domestic economy fromto external shocks, increase volume of trade, better regional integration, make country more competitiveand ,a tool for reduce poverty, enhance productivity of capital and labour and above all, must promote human and social development.
In a good number of developing countries, economic diversification is widely acclaimed to be a veritable source of national development and growth. A number of evidence from the Latin American and Asian countries provide strong confirmation to this claim. In Brazil, for instance, xxxxx reveals how xxxxxx. This pattern is similar to developments in India, Malaysia, xxxxx. Cadot et al (2015) citing the work of Gelb et al (2010) argue that country that over depended on other countries for import, and on primary product suffer the risk associated with market fluctuation, and deny themselves the benefit associated with export diversification.
Despite the overwhelming evidence linking diversification to economic growth and development, Africa is lags far behind in the global indices of diversification. Statistical evidence from xxxxx, for instance, places xxxx African countries at the bottom of the xxx index. South Africa, one of the continent’s most industrialized economies, is placed at xxxx – a level below xxxxxxx. Nigeria, which is reckoned as Africa’s largest economy, occupies the xxxx position, below xxxx. This trend is better demonstration in figure xxxx below:
At the sub-regional level, West Africa comes last in both the indices of economic and export diversifications. This is so despite the presence of Nigeria, Ghana and Cote d’Ivore in the sub-region. Compared to the case of Southern Africa and Eastern African sub-regions, the level of diversification West Africa is xxxxx. The poor performance of the West African countries in the area of economic and export diversification is without prejudice to the number of industrialization policies and programmes implemented by the countries since independence in the 1960s. Nigeria, Ghana xxxx, for instance, are recorded to have aggressively implemented the policy if import substitution and industrialization (ISI) from the early independence years up until the adoption of SAP in the mid-1980s (xxxxx). The general claim in the literature is that the implementation of SAP weakened the domestic productive capacity and made the local economies more vulnerable to external shocks (xxxxx). Subsequent efforts by most of the countries, in Africa towards industrialization and export diversification have proved very abortive – thus resonating research interests on the set of optimal policy options for achieving diversification in the region. The key questions that form the bases of the diversification debates in this study are ; what range of products could Africa export to diversify? Why has export diversification constitute major challenges in Africa considering their rich human and natural endowment? what benefits do country stand to reap from diversifying her economy? And finally, what is the dialectical relationship between export diversification and economic growth .To contribute specially to this important policy debate, our study draws from the existing theoretical and empirical premises to estimate: the core drivers of economic and export diversifications in Africa; the link between diversification and growth; and the interactive impact of diversification (and physical factors, public policies, macroeconomic variables, institutional factors and access to markets) on growth.