Citation:

Dr. Matthew Kromtit. "State Intervention, Liberalisation and Economic Diversification in Resource-Rich Developing Countries" International Research Journal of Economics and Management Studies, Vol. 3, No. 3, pp. 273-286, 2024.

Abstract:

This paper empirically examines the impact of state intervention and liberalisation on economic diversification in resource-rich developing countries. It investigates further whether improved government regulatory institutions could really matter in strengthening the impact of fiscal and liberalisation tools on economic diversification. Using the data from the World Bank from 1995 to 2019 for 58 resource-rich developing countries robust panel data fixed effects estimator is used to solve for unobserved heterogeneity and heteroscedasticity. The results from various panel regressions show that state intervention in terms of fiscal and regulation tools indeed matters in diversifying the economies in resource-rich developing countries. While, taxes and government expenditure on education and regulation report a negative significant impact on the index of economic diversification, implying a decrease in value added from services relative to manufacturing, government health expenditure indicates a positive significant impact. Liberalisation in terms of interest rate, trade openness and tariff also indicates a negative significant impact on the index of economic diversification. Resource rents further show a negative significant impact on economic diversification, among other controls. The cross-effects results show that the interactions of regulation and fiscal tools, as well as the interest rate and tariff, matter for economic diversification.

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Keywords:

Developing Countries, Economic Diversification, Liberalisation, Natural Resources and State Intervention.