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Diversification and structural transformation play important roles in influencing the macroeconomic performance of low-income countries (LICs). Increases in income per capita at early stages of development are typically accompanied by a transformation in a country’s production and export structure. This can include diversification into new products and trading partners as well as increases in the quality of existing products.
Export structure is less diversified in low-income countries (LICs) and especially small states that face resource constraints and small economic size. This paper explores the potential linkages between export structure and economic growth and its volatility in LICs and small states, using a range of indices of export concentration differing in the coverage of industries. The empirical analysis finds that export diversification may promote economic growth and reduce economic volatility in these countries. Furthermore, the analysis demonstrates that the economic benefits of export diversification differ by country size and income level—there are bigger benefits for relatively larger and poorer countries within the group of LICs and small states.
The paper considers concepts of economic diversification with respect to exports (including service sectors) for small states. We assessed the economic performance of different groups of 34 small states over the period of 1990-2015 and found those more diversified experienced lower output volatility and higher average growth than most other small states. Our findings are consistent with conventional economic theories but we found that export diversification has a more significant impact on reducing output volatility than improving long run growth in small states. Diversification requires fundamental changes and should be contemplated in the context of a cohesive development strategy.
Abstract: The economies of the six Gulf Cooperation Council (GCC) countries are heavily reliant on oil. Greater economic diversification would reduce their exposure to volatility and uncertainty in the global oil market, help create jobs in the private sector, increase productivity and sustainable growth, and help create the non-oil economy that will be needed in the future when oil revenues start to dwindle. The GCC countries have followed many of the standard policies that are usually thought to promote more diversified economies, including reforms to improve the business climate, the development of domestic infrastructure, financial deepening, and improvements in education. Nevertheless, success to date has been limited. This paper argues that increased diversification will require realigning incentives for firms and workers in the economies—fixing these incentives is the “missing link” in the GCC countries’ diversification strategies. At present, producing non-tradables is less risky and more profitable for firms as they can benefit from the easy availability of low-wage foreign labor and the rapid growth in government spending, while the continued availability of high-paying and secure public sector jobs discourages nationals from pursuing entrepreneurship and private sector employment. Measures to begin to address these incentive issues could include limiting and reorienting government spending, strengthening private sector competition, providing guarantees and financial support for those firms engaged in export activity, and implementing labor market reforms to make nationals more competitive for private sector employment.
The result of two years work by 19 experienced policymakers and two Nobel prize-winning economists, 'The Growth Report' is the most complete analysis to date of the ingredients which, if used in the right country-specific recipe, can deliver growth and help lift populations out of poverty.
The Role of Trade in Ending Poverty looks at the complex relationships between economic growth, poverty reduction and trade, and examines the challenges that poor people face in benefiting from trade opportunities. Written jointly by the World Bank Group and the WTO, the publication examines how trade could make a greater contribution to ending poverty by increasing efforts to lower trade costs, improve the enabling environment, implement trade policy in conjunction with other areas of policy, better manage risks faced by the poor, and improve data used for policy-making.
Does what economies export matter for development? If so, can industrial policies improve on the export basket generated by the market? This book approaches these questions from a variety of conceptual and policy viewpoints. Reviewing the theoretical arguments in favor of industrial policies, the authors first ask whether existing indicators allow policy makers to identify growth-promoting sectors with confidence. To this end, they assess, and ultimately cast doubt upon, the reliability of many popular indicators advocated by proponents of industrial policy. Second, and central to their critique, the authors document extraordinary differences in the performance of countries exporting seemingly identical products, be they natural resources or 'high-tech' goods. Further, they argue that globalization has so fragmented the production process that even talking about exported goods as opposed to tasks may be misleading. Reviewing evidence from history and from around the world, the authors conclude that policy makers should focus less on what is produced, and more on how it is produced. They analyze alternative approaches to picking winners but conclude by favoring 'horizontal-ish' policies--for instance, those that build human capital or foment innovation in existing and future products—that only incidentally favor some sectors over others.
This Selected Issues paper analyzes various aspects of fiscal framework in the Republic of Mauritania. Mauritania needs to avoid pro-cyclical fiscal policies and adopt rules that guide medium-term fiscal sustainability. Fiscal policy has been responsible and focused on fiscal consolidation, but important challenges lie ahead linked to price volatility, exhaustibility of resources, and effective use of resources. Mauritania has important natural resource wealth, and its fiscal policy is shaped by considerations resulting from its reliance on resource revenues. Prospects for price shocks in the short term and significant mining expansion in the long term could pose significant challenges to fiscal policy management. The analysis of fiscal framework options reveals that a fiscal rule which targets a nonresource primary balance for long-term sustainability, designed to allow some frontloading of public spending on productive investment, would be appropriate for Mauritania under the assumption of a finite resource horizon. A fiscal rule targeting a structural resource balance would be appropriate in the scenario of long-lasting resources, possible under the assumption of favorable developments in the global commodity markets.
We show that gender inequality decreases the variety of goods countries produce and export, in particular in low-income and developing countries. We argue that this happens through at least two channels: first, gender gaps in opportunity, such as lower educational enrollment rates for girls than for boys, harm diversification by constraining the potential pool of human capital available in an economy. Second, gender gaps in the labor market impede the development of new ideas by decreasing the efficiency of the labor force. Our empirical estimates support these hypotheses, providing evidence that gender-friendly policies could help countries diversify their economies.