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Diversification and development

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Author Info

  • Miklos Koren
  • Silvana Tenreyro

Abstract

This paper explores the relationship between sectoral diversification and economic development. We develop a risk-based methodology to assess countries' extent of industrial diversification. The industrial structure of a country tends to be risky when the country i) has a high sectoral concentration, ii) specializes in highly risky sectors, and/or iii) specializes in sectors highly affected by country-specific fluctuations. We document the following regularities. First, sectoral concentration declines and then increases with development. Second, industry-specific risk declines with development. Hence, at early stages of development, the decline in concentration is accompanied by a parallel decrease in industry risk, whereas at higher levels of development sectoral concentration and industry risk move in opposite directions. Third, country-specific risk declines along the development path. Fourth, the covariance between industry and country risk increases with development. We also derive indicators of consumption risk that provide direct evidence on the welfare implications of risk. Finally, we compare the overall level of risk with that of the "optimal country portfolio."

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Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 03-3.

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Date of creation: 2003
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Handle: RePEc:fip:fedbwp:03-3

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Keywords: Economic development ; Industries;

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References

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Citations

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Cited by:
  1. Ralph Chami & Dalia Hakura & Peter Montiel, 2010. "Do Worker Remittances Reduce Output Volatility in Developing Countries?," Center for Development Economics 2010-01, Department of Economics, Williams College.
  2. Francesco Caselli & Silvana Tenreyro, 2005. "Is Poland the Next Spain?," NBER Working Papers 11045, National Bureau of Economic Research, Inc.
  3. Tobias Bidlingmaier, 2007. "International Trade and Economic Growth in Developing Countries," DEGIT Conference Papers c012_041, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Luca De Benedictis, 2006. "Openness, Specialization and Growth," DEGIT Conference Papers c011_054, DEGIT, Dynamics, Economic Growth, and International Trade.
  5. Sarah Jacobson & Ragan Petrie, 2010. "Favor Trading in Public Good Provision," Department of Economics Working Papers 2010-19, Department of Economics, Williams College, revised Apr 2013.
  6. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
  7. Luca De Benedictis & Marco Gallegati & Massimo Tamberi, 2006. "Overall Specialization and Income: Countries Diversity," Working Papers 37-2006, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.
  8. Dalia Hakura & Ralph Chami & Peter Montiel, 2009. "Remittances: An Automatic Output Stabilizer?," IMF Working Papers 09/91, International Monetary Fund.

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