Limited economic diversification – where production is concentrated in sectors characterised by low technology spillovers – can limit productivity growth and expose an economy to the macroeconomic instability of a fate dictated by external events. Moreover, development and diversification appear to be related. Imbs and Wacziarg (2003) show that higher per capita incomes are associated with greater diversification and then with increasing specialisation at higher per capita incomes. Cadot et al (2011) indicate that the pattern Imbs and Wacziarg found between incomes and economic diversification is an inherent feature of the development process. While Lin (2012) argues that governments can guide economic diversification and speed up the structural transformation essential to development, policy makers face the risk that misguided intervention can hurt the process of economic diversification.
Can governments do something about economic diversification? In a recent working paper we explore the hypothesis that volatility is at least partially responsible for Russia’s limited success in diversifying its economy (González et al. 2013). Specifically, we ask the following questions:
- Do new firms emerge; and,
- If so, do they survive the d