What do we know about export diversification in oil-producing countries?

Abstract

Oil-exporting countries are often advised to diversify their economies, yet surprisingly little is known about how this can be done. Research on this issue has been constrained by missing and inconsistent data, selection bias, and the use of uninformative measures of diversification. This paper uses a novel measure of export concentration from the IMF to describe diversification trends between 1962 and 2010 among the 38 largest oil producers. It documents three empirical patterns: a rising gap in export diversification between oil-producing states and non-oil states; the heightened concentration of exports in most oil and mineral producing states from 1980 to 2010; and the heterogeneous performances of the oil producers over the long run. Four striking patterns stand out: the oil exporters have developed the most narrowly-specialized economies in the global market, making them uniquely vulnerable to price shocks; among the oil exporters, the African states have the poorest diversification record; successful diversification is broadly associated with lower levels of oil wealth, which is consistent with a Dutch Disease effect; and success is not strongly associated with population, government effectiveness or democratic accountability.