The Impact of the Geographical Diversification of Saudi Exports: An Intensive and Extensive Margin Approach

Abstract

This paper investigates the impact of the diversification of Saudi exports on countries and sectors’ performance using the geographical extensive margin approach. This concept suggests that the diversification strategy is based on two aspects—a country exporting old products to new markets and new products to new markets. A multiplicative gravity model that includes traditional control variables, such as economic size and geographical distance between trade partners, was used to estimate the determinants of Saudi exports. This model was augmented by a concentration index as an additional barrier to trade. This estimation used the Poisson Pseudo Maximum Likelihood (PPML) method in order to cover Saudi partners during the period 1999–2018. This technique deals with data such as the zero observed dependent variable, and it provides consistent and robust estimations. The study’s analysis found that the Old Product New Destination strategy led to an increase in export value as a result of the emergence of new market demand in China and India. On the other hand, the New Product New Destination strategy is limited and doesn’t contribute to the diversification of Saudi exports.