The impact of extractive industries on regional diversification – evidence from Vietnam

Abstract

Economic diversification is seen as imperative to reduce resource-dependent economies’ vulnerability to a broader resource curse. Despite its importance, we know surprisingly little about the relationship between natural resource-dependence and economic diversification. The few insights that exist, remain on a country-level. But, since the importance of natural resource extraction differs across regions in the same country, it would be odd to assume that the effects of extractive industries on the diversification performance would be felt evenly countrywide. Also, extractive regions in the same country can manage to develop new non-extractive industries with varying success. Understanding this relationship on a regional level is important in order to identify conditions under which diversification of extractive regions is likely to materialize. This paper therefore aims to bring the study of the relationship between extractive industries and diversification to a regional level. To this end, we analyze how the regional importance of extractive industries has affected the entrance of non-extractive industries to Vietnamese provinces between 2006 and 2010. Furthermore, the study investigates to what extent region-specific conditions – that is the regional industrial profile and institutions - moderate the effect of the regional presence of extractive industries on regional diversification. Our findings reveal that extractive industries tend to constrain non-extractive industry entries on a regional level. However, the results also show that adequate regional institutions can moderate this negative effect on the regional diversification performance. Thereby the study underlines the need and value of studying the relationship between extractive industries and diversification also on a regional level.