Export diversification across countries and products: Do Eastern European (EE) and Commonwealth of Independent States (CIS) countries diversify enough?

Despite the importance of geographical and product diversification of exports, this question has not got enough attention in the literature. We look at country and product diversification of exports from Eastern Europe (EE) and Commonwealth of Independent States (CIS), two groups of countries that both substantially increased trade openness since the beginning of transition, but took different paths in terms of product and geographical composition of exports, and compare with the export diversification predicted by the gravity equation estimated on a large sample of countries in 2001–2007. The results demonstrate substantial deviations of the actual diversification levels from the levels predicted by the gravity model for the CIS countries, while the EE countries' levels of diversification are much closer to the levels predicted by the model and consistent with the data. All CIS countries lag behind the region leaders – Czech Republic and Poland – in terms of the degree of export diversification. In particular, the CIS countries extensively engaged in the export of raw materials have the most concentrated exports in terms of their product composition. In terms of geographical diversification, Belarus has the least diversified exports among all transition countries.