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Sustainable trade

How trade diversification changed in the last two decades

Published 14 February 2023

Of the 30 economies analyzed in the Hinrich-IMD Sustainable Trade Index 2022, most have an unconcentrated level of trade diversification. But one major shift that has occured in the last two decades has created wide repercussions for sustainable commerce: an increasing reliance on China as a global factory.

Recent import and export restrictions and disruptions in supply chains have highlighted the impact of the lack of diversification in trading partners for individual sectors and the need for resilience in trade relationships. Using the Herfindahl-Hirschman Index (HHI) — a measure of market concentration — Darren Anderson of Oxford Economics surveys the changing patterns over two decades of trade dependency among 30 economies featured in the Hinrich-IMD Sustainable Trade Index (STI) 2022.

Overall trade diversification has improved since 2002 as China has captured a greater share of global trade and eventually became the most diversified of the STI economies. But this change has had implications for economies that increasingly rely on the country as an export destination, such as Chile, Peru, and Australia. From 2013 onwards, the net effect of trading with China for most countries moved from being a source of diversification to becoming a source of concentration.

In this first deep dive in a series of four into the key findings and themes of the STI 2022, Anderson surveys the issue of import and export diversification through data-rich analysis and how it relates more broadly to trade sustainability.

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Darren is a director in Oxford Economics’ Australia office and leads the global Transaction Due Diligence and Freight teams.

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