There is a growing recognition that the composition and behaviour of exports matter for development. However, empirical studies examining these issues focus primarily on develop countries and larger emerging economies. We therefore seek to fill a gap in the literature by examining the extent and the factors explaining export specialization, the dynamics of export growth and the duration of export relationships from the perspective of a small developing country, Trinidad and Tobago, for the period, 1996-2009. These issues are particularly important for trade policy formulation and export promotion. To examine the factors explaining export specialization, we use HS 4-digit export data and conduct our estimation using mainly Fractional Logit Generalized Linear Model (GLM). To explore the factors explaining the dynamics of export growth, we use HS 6-digit manufacturing export data and estimate our model using Ordinary Least Squares (OLS) and Poisson Pseudo-Maximum Likelihood Estimation (PPML). Finally, to explain to factors influencing export duration, we also use HS 6-digit manufacturing export data and employ Stratified Cox Estimation.
We find several important results pertaining to Trinidad and Tobago’s exports. First and foremost, we find Trinidad and Tobago exports are highly specialized; the extensive margin contributes substantially to export growth (for manufactured goods) and the duration of export relationships is extremely short. We also find strong evidence that Trinidad and Tobago’s exports to larger markets is less specialized, increases both the intensive and the extensive margins of export growth and increases export duration. Further, we unearth strong evidence that greater distance from export markets increases export specialization, dampens both the intensive and extensive margins and reduces export duration. In addition, we find cogent evidence that regional integration with trade partners through CARICOM membership reduces export specialization, increases both the intensive and extensive margins and increases export duration. Moreover, we find some evidence that higher average tariffs of trading partners increases export specialization, reduce the extensive margin and increase export duration. Also, we discover evidence that WTO membership of trade partners increases the intensive margin and increases export duration. We also find substantial evidence that better institutional quality and governance in export destinations reduces export specialization, dampens the intensive margin but reduces export duration. Finally, our results show that the presence of Diplomatic Missions and Consulates in export markets increases the intensive margin and dampens the extensive margin. Relatedly, we find robust evidence that Trinidad and Tobago’s export duration is longer, the greater the expenditure per capita on trade promotion in export markets.
Our research points to the need for the implementation of several trade policy measures to stimulate favourable changes to the composition and behaviour of exports. These measures require collaborative actions both at the regional and international to simulate more beneficial trade. They suggest the need to improve capacity among CARICOM countries to negotiate trade agreements with developed countries as well as the WTO to enable more beneficial trade to member countries. Our results also point to the need for increase spending on trade promotions and the engagement of more specialist staff to assist in trade promotions by Trinidad and Tobago’s diplomatic agencies in foreign markets. In addition, our findings suggest the need for added incentives for product discovery and innovation by Trinidad and Tobago’s manufacturers. Our findings could be of interest to policy makers in other small export dependent economies with economic structures very similar to Trinidad and Tobago.