Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries

The recent commodity price drop has renewed attention on the importance to diversify resource-dependent economies in particular to limit their exposure to commodity price volatility. While commodity price booms can be an opportunity to diversify the economy if managed properly, it remains an empirical question whether this has effectively been the case. Using a panel of 78 resource-dependent countries over 1970-2012 we tackle this question thanks to cointegration analysis, dynamic macro-panel estimators, as well as analyses of diversification outcomes during selected commodity price boom and bust episodes. While our econometric results evidence a stable and significant impact of commodity price booms on export concentration through a more concentrated mix of already exported products, this relationship includes both an increase in export concentration during commodity price booms and an increase in export diversification during commodity price drops. We also evidence a higher increase in export concentration during the 2000s commodity price booms than the 1970s, which explains the urging current need of most resource-dependent countries to diversify.