Despite the widespread adoption of trade diversification as a legitimate policy objective by planners in developing countries, there has as yet been little effort to examine systematically the argument that diversification will reduce fluctuations in export earnings. This paper attempts to develop a model, along the lines of the Markowitz model of portfolio analysis, which would allow one to investigate the impact of diversification. The analysis suggests that diversification does not invariably reduce or eliminate export fluctuations and that diversification may involve a cost in terms of lost export earnings.
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James H. Love (1979) studied this question.