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Kicking a Crude Habit: Diversifying Away from Oil and Gas in the 21st Century

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  • Cullen S. Hendrix

    () (Peterson Institute for International Economics)

Abstract

This paper investigates the correlates of diversification away from oil and natural gas dependence in the context of the 21st century resource boom (and bust). In a sample of 40 oil- and gas-dependent economies, the majority showed significant sectoral diversification of GDP, but exports remained highly concentrated in fuel exports. Regression analysis indicates that countries that began the boom with higher levels of oil and gas dependence, poorer countries, and those with significantly larger- or smaller-than-average populations were more successful in diversifying their GDP during the commodities boom. Governance clearly matters--more effective, capable bureaucratic structures are associated with greater GDP diversification away from oil and gas--though the effects are not uniformly positive. For any given level of government effectiveness, stronger rule of law is associated with less GDP diversification. Education appears to affect GDP and export diversification differentially. Consistent with endogenous growth theory, countries with more educated populations saw greater growth in their nonresource sectors than countries with less educated populations, though education is associated with greater export concentration. Market proximity does not affect diversification. Internal economic diversification in the 21st century has been less a matter of correct policy formation and implementation and more a matter of factors that shape the policymaking environment, with the findings suggesting a difficult road to economic diversification for the Gulf Cooperation Council economies.

Suggested Citation

  • Cullen S. Hendrix, 2017. "Kicking a Crude Habit: Diversifying Away from Oil and Gas in the 21st Century," Working Paper Series WP17-2, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp17-2
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    File URL: https://piie.com/publications/working-papers/kicking-crude-habit-diversifying-away-oil-and-gas-21st-century
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    References listed on IDEAS

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    More about this item

    Keywords

    petroleum; diversification; education; rule of law; institutions; Gulf Cooperation Council;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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