Specialisation is better than being jack of all trade.
Bangladesh has one item for export in large quantity, apparel (70% or more of all exports). Specializing in this is good (having a supportive ecosystem that developed is good), but this is not a sustainable scenario. Other competing countries will keep coming up (in Africa, especially) with lower cost of labor, as we emerge economically and our rate of labor goes up. This has happened to Japan, then Taiwan/HK/Korea, then China, and now also Malaysia, Thailand and Indonesia. It will happen to us, to Vietnam and already Laos/Cambodia (population is relatively low). So putting all our export eggs in the apparel basket will be economic suicide.
We have to diversify our export basket and improve,
1. Type
2. Quality, and
3. Quantity
of value addition, to serve markets of all types and buying powers (just like China has). China sells and exports plastic items for Poundland and also items like DJI Mavic drones, Precision Cameras/Lenses. massive construction equipment and CNC/Waterjet manufacturing items. That is why they are one of the world's largest economies. We can never become China, but we can certainly do better for ourselves than we are doing right now.
The dangers of just staying at apparel production will become apparent after we graduate to middle income country and lose GSP status in EU, when our exports to that area become much more expensive due to tariff. These steps are a must.
Pharma, ceramics/porcelain, leather goods, IT and shipbuilding exports will help somewhat, but we cannot stop there.
Here are the academic reasons, follow the link for a more comprehensive discussion.
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Export diversification may be an important issue for developing countries for several reasons. First, a diversified bundle of export products provides a hedge towards price variations and shocks in specific product markets (Bertinelli et al., 2006; Levchenko and di Giovanni, 2006).
Second, the type of products exported might affect economic growth and the potential for structural change (Hausmann et al., 2007; Hausmann and Klinger, 2006; Whang, 2006).
Third, export diversification in the direction of more sophisticated products may be beneficial for economic development. Given these potential benefits of export diversification, an important policy question is what a country can do to diversify its exports.
For poor countries to grow rich, it is important for them to modify the composition of their exports which will enable them to look more like that of rich countries. For over 50 years, economic and export diversification has been given high importance on the list of priorities for development policy.
The argument was based on the observation that dependence on primary commodity production and exportation by developing countries expose them to commodity shocks, price fluctuations and declining terms of trade. As a result, a country’s foreign exchange reserves and the ability to have funds for imported inputs become subject to instability and uncertainty.
The debates about the Prebisch-Singer hypothesis (1959) and the need for industrialization gave priority to diversify economies away from primary commodities because of unfavorable and declining terms of trade, slow productivity growth, and relatively low value added.
There are several reasons for developing countries to have export diversification. Firstly, diversifying their bundle of exports will protect them from the risk of unpredictable declining trend in international prices of primary exportable commodities that, in turn, lead to unstable export earnings. Export diversification could therefore help out to stabilize export earnings in the longer run (Ostry, 1994; Greenaway, 2001). FAO (2004) maintains that due to the absence of export diversification in developing countries, decline and fluctuations in export earnings have negatively influenced income, investment and employment.
Diversification provides the opportunities to extend investment risks over a wider portfolio of economic sector which eventually increase income (Acemoglu and Zilibotti 1997). Romer (1990) believes that diversification can be seen as an input factor that has an effect of increasing the productivity of other factors of production. Through exports it is also possible to build an environment that creates competition and as a result acquire new skills. Overall economic growth and acquisition of human capital may be slow if there is the absence of pressure from outside competitive forces (Husted and Melvin, 2007).
Diversification helps countries to hedge against adverse terms of trade shocks by stabilizing export revenues. It enables them to direct positive terms of trade shocks into growth, knowledge spillovers and increasing returns to scale. Other industries in the country can also gain as export diversification can lead to knowledge spillovers from new techniques of production, management or marketing practices (Amin Gutierrez de Pineresand Ferrantino, 2000).
Furthermore economic growth and structural change depends upon the type of products that is being traded (Hausmann et al., 2007; Hausmann and Klinger, 2006; Whang, 2006). Thus through export diversification, an economy can progress towards the production and exportation of sophisticated products which may highly contributes towards economic development.
Export diversification allows the government of an economy to achieve some of its macroeconomic objectives namely sustainable economic growth, satisfactory balance of payment situation, employment and redistribution of income."
Earlier a country’s economic development was based either on the degree of specialization or diversification of a country’s production and trade structure. Based on Adam Smith’s conc
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