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What Do We Know About Economic Diversification in Oil-Producing Countries?
| Content Provider | Semantic Scholar |
|---|---|
| Author | Ross, M. L. |
| Copyright Year | 2017 |
| Abstract | countries dependent on oil and mineral exports are often advised to diversify their economies, yet surprisingly little is known about how this can be done. This paper reviews the recent literature on diversification in resource-dependent states and suggests it has been constrained by missing and inconsistent data, and a reliance on diversification measures that are relatively uninformative for resource-rich states. It then uses an improved measure of export concentration from Papageorgiou and Spatafora to document three empirical patterns over the last half-century: the divergence between oil-producing states and non-oil states; the reconcentration of exports in most oil and mineral producing states since 1998, caused by the boom in commodity prices; and the heterogeneity of the oil producers, marked by greater diversification in Latin America and Southeast Asia, mixed performances in the Middle East, and greater concentration in Africa and the former Soviet Union. While change in the former Soviet Union was spurred by large new discoveries, the diversification failure of all oilproducing states in both North and sub-Saharan Africa is striking, and stands in contrast to the region’s non-oil producers. The paper concludes with a research agenda for deepening our understanding of this issue. The Applied Research Programme on Energy and Economic Growth (EEG) is led by Oxford Policy Management in partnership with the Center for Effective Global Action and the Energy Institute @ Haas at the University of California, Berkeley. The programme is funded by the UK Government through UK Aid. The views expressed in this paper do not necessarily reflect the UK Government’s official policies. 1 Special thanks to Sambit Bhattacharyya, Carson Christiano, Torfinn Harding, Paasha Madhavi, Neil McCulloch, Ragnar Torvik and Catherine Wolfram for helpful comments and discussions. This paper is prepared as a ‘State of Knowledge Paper’ for the DFID-funded research program ‘Energy for Economic Growth.’ 2 Professor, UCLA Department of Political Science, and Visiting Scholar (2016-17), Blavatnik School of Government and Nuffield College, Oxford University. Email: mlross@polisci.ucla.edu. 2 Introduction Oil and gas exporting countries are routinely advised to diversify their economies in order to buffer themselves against commodity price volatility, create new jobs outside the resource sector, prepare for future resource depletion, and ward off a broader “resource curse.” 3 The drop in oil and gas prices since mid-2014 has led to hardships in many oil-exporting states and triggered a renewed interest in diversification. Despite its popularity as a policy recommendation, surprisingly little is known about economic diversification. A recent IMF study notes that diversification may be desirable, “but there is only limited analysis as to which aspects of diversification are important, under what conditions it is desirable, and how best to promote it (International Monetary Fund 2014, 6).” Moreover, much of the sparse research on diversification may not be applicable to resource-exporting – particularly oil-exporting – low and middle income countries, who face a distinctive set of challenges. This paper reviews recent studies of diversification in oil-exporting states and documents broad diversification trends over the last five decades. It suggests that we know relatively little about this issue for two reasons. The first is missing or unreliable data: economic data on oil-exporting states tend to be unusually scarce and some of the existing data are misleading, making it difficult to know the true level of diversification in the domestic economy, and to a lesser degree, in the export sector (Ross 2012). The United Nations Industrial Development Organization (UNIDO) Industrial Statistics database – a widely-used source of manufacturing data – has data on a relatively small number of oil exporting countries. Some oil-dependent countries report impressive growth in their manufacturing exports because their governments misclassify refined oil products as “manufactured goods” (Battaille and Mishra 2015, 16). As McMillan, Rodrik and Verduzco-Gallo (2014) note, employment data by sector – which is necessary to estimate employment diversification – tends to be sparse, inconsistent, and difficult to obtain, particularly in sub-Saharan Africa. Their important analysis, using a cross-national database on employment, value added, and labor productivity disaggregated into nine economic sectors, covers just 38 countries, only seven of them significant oil producers. The second is that even export diversification – which is easier to measure than other forms of diversification – is typically measured in ways that are noisy or uninformative for oil exporters. Diversification is defined by the IMF as “the shift to a more varied production structure, involving the introduction of new or expansion of pre-existing products, including higher quality products (International Monetary Fund 2014, 10).” Standard measures of export diversification account for three factors: the number of products exported, the number of export markets, and the relative value of each product. A country whose exports are dominated by a single product whose price is volatile will experience large swings in the value of this product, creating the appearance of large changes in export concentration, even if there is no change in volume of goods exported, the number of exported products, or the number of trading partners. For example, in a period of rising prices an oil exporter will see the fraction of its exports from oil rise, causing its nominal export diversity to fall; when prices fall, the fraction of its exports from oil will also drop and 3 See, for example, Auty (2001), Collier and Page (2009), Lederman and Maloney (2006), Ross (2012), and Sy, Arezki, and Gylfason (2011). 4 I use the term “oil” in this paper to refer both to oil and natural gas. |
| File Format | PDF HTM / HTML |
| DOI | 10.1016/j.exis.2019.06.004 |
| Alternate Webpage(s) | https://cloudfront.escholarship.org/dist/prd/content/qt69p5494g/qt69p5494g.pdf?t=p17xp3 |
| Alternate Webpage(s) | https://doi.org/10.1016/j.exis.2019.06.004 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
