What Drives Successful Economic Diversification in Resource-Rich Countries?. (29th March 2020)

• Record Type: Journal Article
• Authors: Lashitew, Addisu A; Ross, Michael L; Werker, Eric
• Is Part Of: World Bank research observer. Volume 36:Number 2(2021)
• Page Start: 164
• Page End: 196
• Publication Date: 2020-03-29
• Subjects: diversification -- resource curse -- competitive capabilities -- non-resource sectors -- manufacturing -- services; Economic development -- Periodicals; Developing countries -- Economic conditions -- Periodicals; Economic development; Economic history; Developing countries; Periodicals; 330
• DOI: 10.1093/wbro/lkaa001
• Languages: English
• ISSNs: 0257-3032

Abstract

Abstract: The "resource curse" is often understood to imply poor growth in the non-resource sectors of the economy, but research into the diversification performance of resource-rich countries is limited. This paper surveys recent evidence and identifies empirical patterns in the economic diversification of resource-rich countries. Diversification is measured using the growth of per capita non-resource (manufacturing and services) sectors in domestic and export markets, which has a cleaner interpretation than competing measures. This measure is used to evaluate the long-term diversification of countries that started off as resource-dependent, and to rank countries according to their performance. We then identify policy-relevant correlates of diversification at the national level, including the acquisition of human capital, public and intellectual capital, and firm dynamism. More resource-dependent countries appear to perform worse on measures of human capital and intellectual capital, but more resource-abundant countries perform better on public capital and human capital accumulation. We examine the mechanisms behind diversification performance through in-depth case studies of Oman, Laos, and Indonesia, and conclude by identifying policy lessons and future research directions.