Export Diversification, Economic Globalization, and Capital Formation as Drivers of Real Income: Evidence from BEM Countries

Abstract

The main purpose of this study is to investigate the effect of export diversification (ED) on economic growth (EG) in ten Big Emerging Markets (BEMs) by employing new-generation econometric approaches. The present study makes an important and original contribution to the extant literature by examining the relationship between export diversification and economic growth across different quantiles of the growth distribution using next-generation panel data methods. The effect of independent variables on economic growth was investigated using Panel Quantile Regression and Common Correlated Error (CCE) estimators. To capture country-specific dynamics, the Konya (2006) test which is SUR-based panel causality test an approach is implemented. Evidence from the panel quantile regression indicates that export diversification, fixed capital formation, and economic globalization exert positive effects on economic growth across quantiles. Additionally, the Konya SUR-based causality results show that the direction of causality between export diversification and growth varies across countries, with both unidirectional and bidirectional causal linkages identified. Overall, the findings underscore the critical role of export diversification policies in promoting sustainable economic growth in emerging market economies.