Kicking a Crude Habit: Diversifying Away from Oil and Gas in the 21st Century

26 Pages Posted: 7 Feb 2017

See all articles by Cullen S. Hendrix

Cullen S. Hendrix

University of Denver - Josef Korbel School of International Studies; Peterson Institute for International Economics

Date Written: February 2017

Abstract

This paper investigates the correlates of diversification away from oil and natural gas dependence in the context of the 21st century resource boom (and bust). In a sample of 40 oil- and gas-dependent economies, the majority showed significant sectoral diversification of GDP, but exports remained highly concentrated in fuel exports. Regression analysis indicates that countries that began the boom with higher levels of oil and gas dependence, poorer countries, and those with significantly larger- or smaller-than-average populations were more successful in diversifying their GDP during the commodities boom. Governance clearly matters — more effective, capable bureaucratic structures are associated with greater GDP diversification away from oil and gas — though the effects are not uniformly positive. For any given level of government effectiveness, stronger rule of law is associated with less GDP diversification. Education appears to affect GDP and export diversification differentially. Consistent with endogenous growth theory, countries with more educated populations saw greater growth in their nonresource sectors than countries with less educated populations, though education is associated with greater export concentration. Market proximity does not affect diversification. Internal economic diversification in the 21st century has been less a matter of correct policy formation and implementation and more a matter of factors that shape the policymaking environment, with the findings suggesting a difficult road to economic diversification for the Gulf Cooperation Council economies.

Keywords: Petroleum, Diversification, Education, Rule of Law, Institutions, Gulf Cooperation Council

JEL Classification: E02, O10, O13, Q02, Q40

Suggested Citation

Hendrix, Cullen S., Kicking a Crude Habit: Diversifying Away from Oil and Gas in the 21st Century (February 2017). Peterson Institute for International Economics Working Paper No. 17-2, Available at SSRN: https://ssrn.com/abstract=2912333 or http://dx.doi.org/10.2139/ssrn.2912333

Cullen S. Hendrix (Contact Author)

University of Denver - Josef Korbel School of International Studies ( email )

Denver, CO 80208
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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