growing. The second type of products may call for an extensive diversification strategy to develop the farming activities and agro-processing. The third type of products may call for an intensive diversification strategy to expand the production and the reach of products that are demanded in leading markets.

In thinking about a diversification strategy, it is also important to have a sense of the country’s comparative advantage, for the stronger comparative advantages the most likely the strategy can succeed. The simple measure used by trade economists to assess a country comparative advantage is the Revealed Comparative Advantages (RCA) after Balassa (1965), which measures how intensely a country is exporting a given product compared to other trading partners in the world. RCA measures reflect both a country’s resource endowment but also any trade policy that has shaped its export capacity (Bender and Li, 2002). As such, the RCA is a good summary of how effective a country is using its endowment and policies to shape its export landscape.<sup>5</sup> Of an even more important significance is the variation of the RCA over time, which indicates whether there is a shift in a country’s comparative advantage. Cai and Leung (2008) proposes a rigorous method to evaluate these variations, by properly reflecting the changes in the export position of each products as we move from a year to another.<sup>6</sup> Using these two indicators, Table 1 reports products increasingly demanded in leading markets for which Tajikistan has experienced increasing RCA over the period 2005-10: farming and agro-processing, aluminum manufacturing and chemical materials seem to provide the broadest intensive export diversification opportunity to Tajikistan.

**Table 1. Tajikistan: RCA in Products Increasingly Demanded in Regional Markets**

|STIC|Product|Export growth|2010|
|---|---|---|---|
|Rev. 3|description|2005-10(%)|RCA|
|p05799|Dried fruit not elsewhere specified,mixtures|342|500|
|p05451|Onions/shallot,fresh/chilled|474|156|
|p05776|Walnuts,fresh/dried|208|55|
|p68422|Aluminum/alloywire|3607|32|
|p68412|Aluminum alloys,unwrought|223|30|
|p05752|Grapes dried(raisins)|90|29|
|p22212|Groundnuts shelled|79|24|
|p05423|Dried beans not elsewhere specified|210|12|
|p05793|Stone fruit not elsewhere specified,fresh|388|8|
|p59312|Prepared explosives not elsewhere specified|211|7|

Source: Tajikistan Customs Committee data, COMTRADE data and author calculations.

To close the discussion on Tajikistan’s export potential, we can look at the resource endowment of the country. Tajikistan has 3.3 million hectares of pastures land, suggesting that livestock may be a sector for potential diversification if complementary measures for fodder conservation, animal health and hygiene are appropriately taken (World Bank 2007a). Given its mountainous landscape, Tajikistan may

> 5 The RCA of country i in product j in year t is defined as: ~~,~~ where Eijt is country i export of

> product j in year t, Eit is country i total export in year t, Ejt is world export of product j, and Et is world total export in year t. If RCAijt>1, country I is said to have a revealed comparative advantage in product j in year t.

> 6 Cai and Leung (2008) calculates the variation of the RCA as follows: , with , and .

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