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Economic diversification, development and globalization

Economic diversification, development and globalization. Natalya Volchkova November 20-21, 2008 New Delhi, India. Motivation. Very little is known about diversification Diversification of Russian economy is claimed to be a prerequisite of sustainable long-term growth

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Economic diversification, development and globalization

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  1. Economic diversification, development and globalization Natalya Volchkova November 20-21, 2008 New Delhi, India

  2. Motivation • Very little is known about diversification • Diversification of Russian economy is claimed to be a prerequisite of sustainable long-term growth • What needs to be diversified: output or export? • This is especially important for resource rich economy • What diversification depends on? Which policy can affect it?

  3. Questions to address • Stylized facts about diversification and development • How diversification depends on • openness, • resources, • FDI, • policies? • Type of globalization matters: regionalism vs. WTO?

  4. How to measure diversification • Gini, HH, CR3, Min-Max spread…..? • What level of industry desegregation? • Manufacture vs. overall economy • Export vs. Output • In this study we use Gini and HH index for 3-digit ISIC – we study concentration

  5. Concentration and development: literature • Imbs and Wacziarg (AER 2003) “Stages of diversification”: U-shape dependence of VA manufacturing concentration on income level

  6. Concentration and development • There is no U-shape in concentration of manufacturing output and export

  7. Theory: concentration and • Openness: economic efficiency increases due to specialization (both of output and export) • Natural resources: ambiguous effect on output concentration, positive effect on export concentration • FDI: fall in output concentration, ambiguous effect on export concentration

  8. Empirical analysis of concentration • Cross-country analysis • Data: • Output concentration: • Manufacture output, 3-digit ISIC rev.2 fromCEPIIdatabase - GINI • Export concentration: • Manufacture export, 3-digit ISIC rev.2 fromCEPII database - GINI • Export, 4-digit SITC rev.2fromCOMTRADE ООН – Herfindal-Hirshman • Country data – fromWDI • FDI – from WDI andOECDIDI

  9. Variables • Concentration: Gini, Herfindal – Hirshman • Development (and size of economy) – GDP per capita,PPP • Openness – share of trade (export) in GDP • Resources – share of primary export (metals, fuel and raw agriculture) in total export

  10. Output concentration - - + ? ***, **, * - significant at 1, 5, 10%; standard error in parenthesis

  11. Export concentration - + + ? ***, **, * - significant at 1, 5, 10%; standard error in parenthesis

  12. Openness and concentration:type of globalization matters ***, **, * - significant at 1, 5, 10%; standard error in parenthesis

  13. Summary of empirical results: Diversification of output and export increases along with • development • FDI increase decreases along with • openness Resources • do not affect manufacture output diversification • are bad for export diversification PTA participation has positive effect on diversification of export

  14. FDI and globalization? • Analysis of bilateral FDI in gravity model framework • Xij,t – dummy variables • WTO membership (both countries in, only one country in) • Member of common PTA • Panel fixed effect (by pairs) estimations, 1975-2005

  15. Multilateral vs. preferential openness and FDI

  16. Diversification and Trade Liberalization • At least two effects of PTA on export diversification – direct (foreign market access) and through FDI • Both effects increase diversification • WTO membership could have negative effect on export diversification

  17. Policy Implication • Regional integration matters for export and output diversification • For Russia bilateral trade liberalization and participation in regional trade agreements could help to overcome both output and export concentration • Further promotion of Russian trade agreements with China and India should also be considered in this respect – there are steps toward it but there is still a long way to go to liberal trade agreements.

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