Revisiting Economic Diversification: A Cross-Country Analysis

Hoda Assem (), Roberta Gatti and Daniel Lederman
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Hoda Assem: The World Bank
Daniel Lederman: Chief Economist Office, Middle East and North Africa region, World Bank.

No 1721, Working Papers from Economic Research Forum

Abstract: The existing literature on development and economic diversification finds an inverted-U function between these two variables, whereby economies diversify as they grow up to a point, after which they start specializing. This paper contributes to this literature by investigating the stages of diversification over the course of development during the past 57 years. The paper emphasizes the trajectories of resource-rich and resource-poor countries, an issue that has not been covered by extant literature. In addition, the paper studies the stages of diversification across three dimensions, namely employment, value-added, and exports. Additionally, it examines the relationship between services. Non-parametric estimations suggest a U-shaped curve between measures of economic concentration and per capita income levels, which is in line with existing evidence. However, these patterns are mainly driven by between-country rather than within-country variation, a finding that had been ignored in the existing literature. Diversification patterns also differ across resource-rich and resource-poor countries: Employment and value added in resource-rich countries are on average more concentrated at low levels of development while in resource poor countries, they are more concentrated at high levels of development. In contrast, at all levels of development, exports are more concentrated in resource-rich countries.

Pages: 49
Date: 2024-08-20, Revised 2024-08-20
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Published by The Economic Research Forum (ERF)

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