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Growth and volatility in resource-rich countries: Does diversification help?

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  • Joya, Omar

Abstract

This paper studies the “natural resources – volatility – growth” link by evaluating the role of economic diversification. I study whether resource-rich countries are able to offset the volatility triggering effects of natural resources by diversifying their economies. Using input–output data, I construct an indicator that captures diversification of the production structure of the economy and density of inter-industry linkages. The results show that resource abundance exerts negative impact on growth through the volatility channel. While the direct effects of natural resources on growth are positive, their adverse indirect effects through volatility could be larger. I find that productive diversification offsets the volatility impact of natural resources. When diversification is controlled for, the negative growth impact of volatility induced by resource abundance disappears. However, the results do not hold true if export concentration measure is used instead of productive diversification.

Suggested Citation

  • Joya, Omar, 2015. "Growth and volatility in resource-rich countries: Does diversification help?," Structural Change and Economic Dynamics, Elsevier, vol. 35(C), pages 38-55.
  • Handle: RePEc:eee:streco:v:35:y:2015:i:c:p:38-55
    DOI: 10.1016/j.strueco.2015.10.001
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    Cited by:

    1. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Clark, Jeremy, 2017. "The evolution of the natural resource curse thesis: A critical literature survey," Resources Policy, Elsevier, vol. 51(C), pages 123-134.
    2. Eric Rougier & Nicolas Yol, 2018. "The volatility effect of diaspora’s location: A migration portfolio approach," Cahiers du GREThA 2018-09, Groupe de Recherche en Economie Théorique et Appliquée.

    More about this item

    Keywords

    Diversification; Macroeconomic volatility; Natural resources; Resource curse;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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