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If diversification is good, why don't countries diversify more? The political economy of diversification in resource-rich countries

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  • Wiig, Arne
  • Kolstad, Ivar

Abstract

For resource-rich countries, diversification is claimed to represent a strategy for reducing resource curse problems. This, however, depends on whether diversification has a positive effect on the country's institutions. While there is a lot of evidence that exports of oil have a negative impact on institutions, we know much less about the extent to which diversification leads to better institutions. This article applies recent political economy theory to the phenomenon of diversification. Theoretical arguments suggest that it is the pattern of industrial activity rather than diversification per se, which affects institutions like democracy. In other words, not all forms of diversification lead to better institutions. Furthermore, where diversification has a positive impact on institutions, diversification may be difficult to attain when it threatens the power base of the ruling elite. A possible implication of these arguments is that policies for diversification should focus on international regulation affecting elite incentives, rather than domestic industrial policy.

Suggested Citation

  • Wiig, Arne & Kolstad, Ivar, 2012. "If diversification is good, why don't countries diversify more? The political economy of diversification in resource-rich countries," Energy Policy, Elsevier, vol. 40(C), pages 196-203.
  • Handle: RePEc:eee:enepol:v:40:y:2012:i:c:p:196-203
    DOI: 10.1016/j.enpol.2011.09.041
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    References listed on IDEAS

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    Cited by:

    1. Clement Anne, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers halshs-01381143, HAL.
    2. Clement ANNE, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers 201615, CERDI.
    3. Nouf Alsharif & Sambit Bhattacharyya & Maurizio Intartaglia, 2016. "Economic Diversification in Resource Rich Countries: Uncovering the State of Knowledge," Working Paper Series 09816, Department of Economics, University of Sussex.
    4. repec:eee:jrpoli:v:52:y:2017:i:c:p:154-164 is not listed on IDEAS
    5. Nouf Alsharif & Sambit Bhattacharyya & Maurizio Intartaglia, 2016. "Economic Diversification in Resource Rich Countries: Uncovering the State of Knowledge," Working Paper Series 9816, Department of Economics, University of Sussex.
    6. Ivar Kolstad & Arne Wiig, 2014. "Diversification and democracy," CMI Working Papers 9, CMI (Chr. Michelsen Institute), Bergen, Norway.

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