Productive diversification in natural resource abundant countries : limitations, policies and the experience of Argentina in the 2000s

The debate on the pattern of specialization in natural resource abundant countries has re-emerged as demand for raw materials and food products from the rapidly growing East Asian countries, speculation in financial markets, and changes in production techniques augmented the demand and supply of natural resources-related goods. Up to mid-2008, when the US subprime mortgage crisis gave birth to a world economic meltdown, these transformations promoted a primary commodity boom and a (more) promising future scenario for developing countries: it remains to be seen whether these expectations will material- ize. Positive natural resource shocks can be a blessing, but can also be a curse, witness what occurred in many countries after the primary com- modity boom of the 1970s. Using alternative, but complementary methodologies, this research explores the impulses for and limitations to productive diversification associated with a positive natural resources shock, as the one Argentina (and other South American countries) have been experiencing recently. The research investigates some of the policies that have been or could be implemented to manage the effects of the shocks and to promote a more diversified pattern of specialization in resource rich Argentina during the 2000s. The investigation starts (chapter 2) by evaluating some cross-country empirical regularities in the relation between the patterns of specializa- tion and economic growth. Using up-to-date econometric techniques and alternative indicators of trade specialization patterns, the research questions the (un)avoidability of the so-called resources curse and shows that processing natural resource can be growth enhancing, an effect that is frequently described, but rarely demonstrated.

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