“Economic diversification and the role of the government in resource-rich economies” by Alan Gelb

The focus of the fourth and last session of day 1 was “Natural Resources and Development”. Alan Gelb, Center for Global Development, made a presentation on “Economic Diversification and the Role of Government in Resource Rich Countries”. Gelb highlighted the possible reasons why countries seek to diversify away from advantage, among which: diversified economies do better in the long run; seek learning-by-doing opportunities and greater “self-discovery”; fear of resource exhaustion; fear that population growth would reduce natural rent/head; fear of potential substitution risk; need to generate jobs; desire diversification for greater macro stability; see higher return on domestic spending given that investing abroad has perceived risks. According to him, every country has different needs and potentials but motivation should be clear because it will shape policy. “There is no simple one thing that Governments need to do to diversify away from oil. They need to first understand why they want to” he said.

He also underlined the need to look at what successful countries have done. In this regard, he listed the following as lessons learned: long term goals for economic development and social stability; strong, stable and engaged technocracy with some continuity; exports, new entry, central to development strategy; constituencies for macroeconomic stability outside the resource sector; opportunities to diversify.

Gelb concluded his presentation by saying that although a strong, concentrated resource base makes economic diversification more difficult, it provides opportunities, including funding for investments in infrastructure, human capital and institutions. Most countries have options if they want to diversify. The question is how strongly they are prepared to push and whether they can do so against political pressure to use rents in other ways.

Watch highlights from Alan Gelb about what policymakers should do to make the structural transformation and to diversify away from oil; and the factors that have helped developing countries to avoid the most adverse effects of the “resource curse”:

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