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Economic Diversification and Sustainable Growth

Now that most of our clients have stabilized, privatized and liberalized to a reasonable extent, policy makers in developing countries, especially low income ones, are wondering what happened to the structural transformation that should have followed in the aftermath of the reforms and led to sustainable growth. In many natural resource-based economies, growth trends have paralleled the peaks and troughs of commodity price trends. Other external shocks have also exacerbated export growth volatility. Unsurprisingly, over a period of two or more decades, increases in per capita income have been small. Eager to diversify their economies, some client governments have announced their own brand of industrial policy, others are contemplating it. Using export data as a proxy for detailed production data, this work program applies constructs from the literature to tentatively link each product in a country’s export basket to a notional income level to measure directly its contribution to per capita income over the longer term. It also uses such constructs in an atypical framework to identify market-picked winners, i.e., nascent non-traditional export sectors in which the country is competitive but unable to diversify. Governments can leverage industrial policy to reward such  nascent sectors through scaling up, and thus facilitate export diversification and structural transformation of the economy over the longer term. The value addition of this framework is to offer policy makers objective tools that can help them to resist and replace ad hoc industrial policy without compromising the goal of significant and sustainable growth.

A Framework for Export Diversification and Sustainable Growth

Applications of the Framework


Beyond Getting Prices Right: Is There A Case For Industrial Policy?
(PREM Week 2006 Session)

The Knowledge Economy and Exports
(PREM Week 2006 Session)

Last updated: 2008-04-09

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