Which policy approach reduces reliance on a narrow export base by expanding the set of export sectors?

• A. Import substitution
• B. Economic diversification
• C. Tariff protection
• D. Currency devaluation

Answer: (B)

Diversification of export activity means growing multiple sectors for outward trade so the economy isn’t tied to a single commodity. This approach reduces vulnerability to price swings in one export and builds broader capabilities, creating more stable and sustained growth as different sectors contribute to the export mix.

That’s why expanding the set of export sectors is the best fit here: it directly targets widening what the country sells abroad, not just changing domestic production patterns or short-term price effects. Import substitution focuses on producing goods domestically to replace imports, which doesn’t inherently expand exports. Tariff protection shields local producers in the domestic market and doesn’t build new export capacity. Currency devaluation can affect competitiveness but doesn’t guarantee new exported industries or diversified export bases.