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Oil windfalls might not be the problem in oil-producing countries: evidence from the impact of oil shocks on export diversification

Eric W. Djimeu and Luc Omgba

No 2018-18, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper examines the factors behind export diversification in oil countries. Specifically, by investigating the impact of oil booms on export diversification through a difference-in-difference framework, this paper finds that the economy’s export structure before oil boom determines whether oil windfalls might affect the diversification process. Thus, an oil boom negatively affects export diversification only if countries initially exhibit low levels of diversification. In countries with a high level of diversification before the boom, an oil boom has no impact on diversification. These results are based on a large sample of 134 countries, and are robust to various sensitivity analyses. They are corroborated with data from the manufacturing sector, which show that oil booms only reduce diversification in countries with a small manufacturing sector prior to the boom. The results suggest that the initial constraints, which hampered the emergence of entrepreneurs’ class prior the boom, are key elements of the failure of a diversification process in resource rich countries.

Keywords: Export diversification; Oil resources; Panel data (search for similar items in EconPapers)
JEL-codes: F1 Q32 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-int
Date: 2018
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