Oil windfalls and export diversification in oil-producing countries: Evidence from oil booms

Abstract

This paper examines the factors behind export diversification in oil countries. Specifically, we investigate the impact of oil booms on export diversification through an empirical framework. The paper finds that economy's export structure before the oil boom determines whether oil windfalls might affect the diversification process. Thus, an oil boom negatively affects export diversification only if countries initially exhibit low levels of diversification. In countries with a high level of diversification before the boom, an oil boom has no impact on diversification. These results are based on a large sample of 134 countries, and are robust to various sensitivity analyses. They are corroborated with data from the manufacturing sector which show that oil booms only reduce diversification in countries with a small manufacturing sector prior to the boom.