Economic Diversification and Development in Resource-dependent Economies: Lessons from Chile and Malaysia
This thesis investigates the role of the state in promoting economic diversification in countries that are over-reliant on the extraction of non-renewable resources. The objective of this thesis is particularly timely given the current context of commodity price bust, which has revealed the economic vulnerability of several commodity-dependent countries. Economic diversification has consequently been brought back as a policy priority in such countries. However, various resource-dependent countries have attempted to diversify their economies but have failed to do so throughout history. As such, this study addresses the question of what needs to be done to diversify such economies, by focusing on the role of industrial policy. The ambition is that this thesis and its theoretical foundations can enrich our understanding of the underlying causes of export diversification and structural change in resource-dependent countries.
The first contribution of this thesis is to reframe theoretical debates related to natural resources and economic development by elaborating a taxonomy of diversification strategies and by reconceiving the way we measure extractive resource endowment through the elaboration of a multidimensional indicator. Three main diversification pathways are discussed in this thesis, namely financial diversification, vertical diversification, and horizontal diversification. This study also demonstrates the contextual determinants that influence the urgency to follow diversification strategies over others.
The second part of this thesis has adopted the analytical account of specific historical cases as the main heuristic for disentangling dynamics of economic diversification in natural resource-dependent economies. It compares the experiences of Chile and Malaysia in diversifying their economies since the 1950s in order to contribute to existing discussions on viable policy interventions for economic development and diversification. This research also contributes to reframing existing narratives on the development of Chile and Malaysia by challenging several misconceptions associated with both countries, notably regarding the role of free market forces.
This thesis finds that the role of industrial policy goes beyond facilitating diversification, as it also shapes the direction of such diversification. In both case studies, government interventions that successfully promoted new sectors not only fixed market failures but also shaped the accumulation of productive capabilities, both within and beyond commodity value chains. It is therefore found that neoclassical and path-dependent approaches to diversification are not suitable in explaining the process of structural change of resource-dependent economies, in contrast to more dynamic approaches to comparative advantage and capabilities accumulation.