## eddpea

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### Executive Summary
- Paper explores the importance and impact of both broad-based and industrial policies on economic diversification in developing economies, drawing on the literature, a range of case studies, and IMF analysis.
- Diversification defined as transition from dependency on traditional sectors, such as agriculture and mining, to a variety of sectors and high-quality services.
- Economic diversification is critical for industrialization or for transitioning toward a high-productivity, service-oriented economy, and helps create an economic structure adaptable to global market fluctuations and resilient to global challenges.
- Literature highlights a strong correlation between diversification and improved macroeconomic performance in developing countries: enhanced stability, faster economic growth, and higher incomes per capita.
- Factors influencing diversification: macroeconomic stability, quality of infrastructure, workforce skills, access to credit, regulatory environment, and income equality.
- Recent surge in industrial policy in advanced economies increases interest in diversification benefits for developing countries and underscores the need to assess conditions required for cost-effectiveness.

### Key findings from case studies and cross-cutting lessons
- Successful diversification requires long-term commitment and effective broad-based (horizontal) policies; well-designed industrial (vertical) policies can play a supporting role but the bar to get them right is high.
- Common lessons:
  - Maintaining macroeconomic stability is critical.
  - Investing in human capital is essential.
  - Fostering competition matters for diversification outcomes.
  - Sector-specific mechanisms such as special economic zones should be used carefully, emphasize tackling underlying bottlenecks, and minimize fiscal costs.
  - Strengthening governance—administrative capacity, transparency (including publication of tax expenditures), accountability, and ensuring value for money—is necessary.
- Country-specific highlights and exact figures:
  - Costa Rica:
    - GDP contracted by 9.4 percent between 1980 and 1982.
    - Inflation reached about 90 percent in 1982.
    - Public spending equated to 54 percent of GDP in the early 1980s.
    - Accession to WTO and preferential trade agreements covering over 80 percent of Costa Rica’s trade.
    - Average applied tariff rate fell from over 11 percent in 1985–89 to around 1 percent.
    - FTZs attracted over 280 high-tech companies by 2017.
    - Share of primary commodities in total exports declined from 65 percent in 1980 to 26 percent in 2018.
    - Outcome: doubling of GDP per capita and dramatic reduction in growth volatility over three decades.
  - Gabon:
    - 2012 PSGE envisaged US$12 billion investment over seven years.
    - Oil revenues constituted over half of total government revenues.
    - Central government debt reduced from 64.2 percent of GDP at end-2016 to 60 percent of GDP in 2019.
    - Tax exemptions caused estimated revenue losses of 4 to 5 percent of GDP.
  - Georgia:
    - Growth averaged 5.6 percent of GDP in 2000–18, leveling to around 4 percent after the global financial crisis.
    - Services rose to two-thirds of total output.
  - India:
    - Value-added share of services increased nearly 20 percentage points from 1990 to 2018.
    - Education spending around 5 percent of GDP.
    - SEZs provided fiscal incentives including tax exemptions for five years.
    - Production Linked Incentive Scheme across 14 key sectors (as of March 2024).
  - Senegal:
    - Plan Senegal Emergent (PSE) launched 2014.
    - Average annual per capita growth: 6 percent during 2014–18 and 4.4 percent during 2019–22.
    - Poverty rate reduced by 5 percent between 2011 and 2018.
    - Private investment reached almost 20 percent of GDP in 2017.
    - FDI remained around 2 percent of GDP, below PSE objective of 6–8 percent.
    - Exports of goods and services amounted to 21.9 percent of GDP as of 2017.
  - Vietnam:
    - WTO accession spurred post-2007 strategies to boost industrialization and export orientation.
    - Domestic revenue collection fell sharply, by as much as 8 percentage points of GDP in the years following tariff reductions and tax incentives.
    - Vietnam spends 3 percent of GDP on education in 2022, with high efficiency of spending noted.

### Climate change and economic complexity
- Climate change increases salience of diversification as certain sectors—especially in agriculture—become less viable owing to shifting environmental conditions; diversifying into other sectors can help economies stay resilient.
- Incorporating green technologies and sustainable industries into diversification strategies is critical.
- Diversification requires acquisition of new capabilities; economic complexity framework indicates economies with greater complexity are likely to grow faster (Hausmann and others 2013).

### Policy approaches, criteria, and implementation challenges
- Two broad policy types:
  - Horizontal policies (broad-based): infrastructure, human capital, ease of doing business, governance.
  - Vertical policies / industrial policy (targeted): subsidies, tax incentives, directed lending, tailored regulatory regimes.
- Four criteria to evaluate potential industrial policies:
  - Solid justification: identify underlying market failure and whether other policies could address it.
  - Well designed: select best instruments and complementary policies.
  - Rigorous cost-benefit assessment (ex ante and ex post): include fiscal and administrative costs and indirect costs from resource misallocation and trading partner retaliation.
  - Well implemented: consistent with institutional and administrative capacity; preserve macroeconomic, fiscal and external sustainability; consistent with WTO commitments.
- Implementation prerequisites:
  - Robust administrative capacity.
  - Comprehensive institutional reforms, transparency, and governance to deter corruption and rent-seeking.
  - Maintain openness to foreign firms and vigorous competition.
- Potential pitfalls (evidence from literature and experience):
  - Research and development subsidies may encourage survival of low-productivity firms (Acemoglu and others 2018).
  - May oversubsidize applied research (Akcigit, Hanley, and Serrano-Velarde 2021).
  - May crowd out business R&D investment (Boeing 2016).
  - In some contexts (China) may yield sharply negative returns and signal political connections (Wei and others 2023; Guo, Guo, and Jiang 2022).
  - In smaller countries, may reduce productivity growth (Davis and Hashimoto 2015).

### IMF engagement, advice, and staff surveys — exact counts and survey results
- Stocktaking of IMF outputs:
  - Analyzed 138 pieces of comprehensive IMF assessment on diversification covering 59 countries (30 low-income developing countries, 10 low- and middle-income countries, and 19 emerging markets).
  - Resulted in 114 single-country and 32 cross-country pieces of analysis.
  - More than a third of outputs focused on countries in fragile situations.
- Staff survey of engagement with authorities:
  - Survey across four departments collected responses from a total of 124 country teams.
  - More than half of country teams recognized the government’s strong interest in diversification; approximately 75 percent of teams saw at least some interest in the issue.
  - Diversification discussions were jointly initiated by teams and authorities in 55 percent of the cases.
  - About 84 country teams noted existing policies facilitating diversification.
- Follow-up survey on vertical policies:
  - Covered 58 country teams.
  - Approximately 60 percent of respondents identified vertical policy as macro-critical for their countries.
  - 62 percent of countries had implemented some form of industrial policy.
  - Less than half of respondent teams discussed vertical policies with authorities in the past 24 months preceding the survey.
  - Less than half of the teams expected to discuss the topic in their forthcoming dialogue.
- IMF teams reported that their advice mainly focused on improving human capital and infrastructure, reducing trade barriers, promoting international trade integration, and moving up value chains.
- Staff requested more granular guidance, case studies, assessment tools, expert collaboration, and stronger/systematic collaboration with development partners.

### Export diversification and quality toolkits (measurement notes)
- Export product diversification index:
  - Based on Theil index; captures extensive margin (range of goods) and intensive margin (concentration of exports).
  - Lower index values indicate higher export diversification.
- Export product quality index:
  - Proxies quality by markup exports command, measured by export unit value adjusted for production cost differences and relative distance to trading partner.
  - Higher adjusted unit values imply higher export quality.
  - Index normalized each year to show export quality relative to the rest of the world.
- Box figure panels (visuals described for six case-study countries):
  - 1. Export Diversification Index, 1962−2014 (Higher value, lower export diversification)
  - 2. Export Diversification Index, Extensive Margin, 1962−2014 (Higher value, lower export diversification)
  - 3. Export Diversification Index, Intensive Margin, 1962−2014 (Higher value, lower export diversification)
  - 4. Export Quality Index, 1976−2014 (Higher value, higher export quality)

### Cross-country synthesis and policy cautions
- Diversification typically takes two to three decades for large strides.
- Horizontal policies commonly emphasized: human capital development, infrastructure, improving institutions and business environment, reducing trade barriers, promoting international integration.
- Vertical policies:
  - Target broad sectors rather than picking national champions to foster competition and avoid rent-seeking.
  - Tackling underlying market failures directly tends to be more successful and less fiscally risky than broad fiscal incentives.
- SEZs/FTZs:
  - Can address business-environment obstacles but often create fiscal burdens from potentially ill-targeted tax exemptions.
  - Country examples show mixed results and fiscal risks; introduction in 2024 of the global minimum tax could render many tax incentives irrelevant or redundant.
- IMF policy guidance generally favors horizontal enabling policies, with selective, well-justified, and well-implemented sector-specific interventions where warranted.

### Conclusions and recommendations (paper-level)
- Economic diversification is critical for development, resilience, and adaptability to climate change, technological change, and geoeconomic fragmentation.
- Effective diversification pathways require comprehensive, context-specific strategies combining:
  - Broad-based (horizontal) policies: macroeconomic stability, human capital, infrastructure, reduced trade barriers, international integration.
  - Targeted (vertical) industrial policies to address market failures, develop new sectors, or improve product quality in competitive sectors.
- Operational recommendations emphasized across the paper:
  - Prioritize macroeconomic stability as a prerequisite.
  - Invest in human capital and infrastructure.
  - Strengthen governance and administrative capacity, increase transparency (including publication of tax expenditures), and ensure accountability and value for money.
  - Use SEZs and tax incentives cautiously given evidence of substantial revenue losses (examples include estimated Gabon revenue losses of 4 to 5 percent of GDP and Vietnam domestic revenue declines by as much as 8 percentage points of GDP).
  - Tailor industrial policies to country-specific capabilities and institutional conditions and conduct rigorous ex ante and ex post cost-benefit assessments.

*IMF DEPARTMENTAL PAPERS • Economic Diversification in Developing Countries (excerpt).*

### Executive Summary ...............................................................................................v

### eddpea - Executive Summary ...............................................................................................v

### Executive Summary
- The paper explores the importance and impact of both broad-based and industrial policies on economic diversification in developing economies, drawing on the literature, a range of case studies, and IMF analysis.
- Diversification is defined as the transition from a dependency on traditional sectors, such as agriculture and mining, to a variety of sectors and high-quality services.
- Economic diversification is critical for industrialization or for transitioning toward a high-productivity, service-oriented economy, and helps create an economic structure adaptable to global market fluctuations and resilient to global challenges.
- A literature review highlights a strong correlation between economic diversification and improved macroeconomic performance in developing countries, including enhanced stability, faster economic growth, and higher incomes per capita.
- Factors influencing diversification include macroeconomic stability, quality of infrastructure, workforce skills, access to credit, the regulatory environment, and income equality.
- The recent surge in industrial policy in advanced economies has increased interest in the potential diversification benefits of such policies for developing countries, underscoring the need to assess conditions required for cost-effectiveness.

### Key findings from case studies and cross-cutting lessons
- Six case studies illustrate that successful diversification strategies require a long-term commitment and effective broad-based (horizontal) policies; well-designed industrial (vertical) policies can play a supporting role but the bar to get them right is high.
- Common lessons:
  - Maintaining macroeconomic stability is critical.
  - Investing in human capital is essential.
  - Fostering competition matters for diversification outcomes.
  - Sector-specific mechanisms such as special economic zones should be used carefully, emphasize tackling underlying bottlenecks, and minimize fiscal costs.
  - Strengthening governance—administrative capacity, transparency (including publication of tax expenditures), accountability, and ensuring value for money—is necessary.

- Country-specific highlights:
  - Costa Rica: Demonstrates the power of a strategic policy shift toward export orientation and trade liberalization, a focus on human capital development, and establishing specialized institutions to overcome market failures and attract foreign investment.
  - Gabon: Some success in reducing dependence on oil, including by attracting foreign direct investment, but a failure to broaden the revenue base has created fiscal challenges.
  - Georgia: Illustrates the potential payoff to market-friendly policies and to improving public governance, but also the need to maintain the momentum of structural reform.
  - India: Solid diversification results owing to the availability of skilled labor, improvements in the business environment, and the promotion of software clusters, including through investment incentives.
  - Senegal: Highlights the importance of policy efforts to address infrastructure gaps, improve the business environment, and increase value addition, but also the fiscal cost of tax incentives.
  - Vietnam: A successful shift from an agrarian to an industrial economy through broad-based policies, including investment in education, backed by macroeconomic stability; however, government strategies—including the relatively large role played by state-owned enterprises, and occasional emphasis on specific sectors and products—were not consistently successful.

### IMF engagement, advice, and staff surveys
- The paper takes stock of IMF work on diversification and presents results of surveys of engagement between IMF teams and national authorities on diversification.
- IMF advice has mainly focused on:
  - Improving human capital and infrastructure.
  - Reducing trade barriers.
  - Promoting international trade integration.
  - Moving up value chains.
- IMF teams reported strong interest by authorities in both horizontal and vertical policies to promote diversification.
- The analysis underscores that diversification requires careful, nuanced policy interventions tailored to each country’s context, production structure, capabilities, and institutions.

### Introduction (context and approach)
- Diversification is an essential mechanism for fostering sustainable economic growth and improving standards of living (IMF 2014).
- The paper analyzes strategies, challenges, and practices for economic diversification using six country case studies: Costa Rica, Gabon, Georgia, India, Senegal, and Vietnam.
- The analysis emphasizes interactions among policy levers: developing human capital, attracting foreign direct investment (FDI), building institutional capacity, and creating a supportive broader policy environment.
- Diversification strategies involve a mix of broad-based (“horizontal”) and sector- or industry-specific (“vertical” or “targeted”) approaches; industrial policy can help address market failures but is context-specific and hard to get right.

### Selected Literature Review and Conceptual Framework — Benefits of Diversification
- Diversification denotes a shift from dependence on traditional sectors, such as agriculture and extractives (oil and mining), toward a broader array of sectors and high-quality services.
- Diversification is related to structural transformation: the dynamic shift of resources from less productive to more productive sectors, including knowledge-based industries.
- Empirical and theoretical literature links diversification to:
  - Enhanced resilience to external shocks (IMF 2014; Cerdeiro and Plotnikov 2017; UNCTAD 2018; Koren and Tenreyro 2013).
  - Potentially faster economic growth, especially in early stages of development (Papageorgiou, Spatafora, and Wang 2015; IMF 2014); but the link to long-term growth can be weakened by factors such as macroeconomic instability (example: Latin American and Caribbean region, IMF 2015).
  - Reductions in poverty and inequality through new industries that generate jobs and boost incomes; diversification into technologically advanced sectors may raise wages and improve job opportunities (Acemoglu and Autor 2011).

- Measurement notes:
  - Methods include distribution of output across sectors, export concentration and export basket complexity, and changes in employment patterns.
  - The IMF’s export product diversification index is based on the Theil index and captures both extensive (range of goods) and intensive (concentration of exports) margins (IMF 2014; Cadot, Carrere, and Strauss-Kahn 2011).
  - The export product quality index measures relative quality of a country’s exports, considering price markups adjusted for production costs and trading distance, providing a yearly global ranking of export quality (Henn, Papageorgiou, and Spatafora 2013).

*Source: eddpea - Executive Summary ...............................................................................................v*

### 4. Economic diversification becomes even more salient in the context of climate change. As certain sectors,

### eddpea - 4. Economic diversification becomes even more salient in the context of climate change. As certain sectors,

### Context and rationale
- Climate change makes diversification more salient as certain sectors, especially in agriculture, become less viable owing to shifting environmental conditions; diversifying into other sectors can help economies stay resilient.
- Incorporating green technologies and sustainable industries into diversification strategies is critical.

### Concepts and evidence
- Diversification is complex and requires countries to acquire new capabilities and expertise (Hidalgo and Hausmann 2009).
- The concept of “economic complexity” describes the knowledge incorporated within an economy; economies with greater complexity (more diverse and sophisticated production structures) are likely to grow faster (Hausmann and others 2013).
- Diversification can be viewed as a route to enhancing economic complexity and driving sustainable growth.

### Historical patterns and regional variation
- Historically, developing economies relied on a limited range of primary products, often exhaustible resources, and a small number of export markets.
- Over the past two decades, these countries have increasingly diversified into new products and trading partners (IMF 2014), but considerable potential for further diversification remains, especially by:
  - enhancing the quality of existing products, and
  - introducing new, higher-value goods.
- Diversification extends beyond manufacturing to encompass agriculture, often the least productive sector in low-income countries.
- Regional patterns:
  - Developing Asia: significant success in diversifying exports through entry into entirely new products and quality upgrading (Papageorgiou, Spatafora, and Wang 2015).
  - Sub-Saharan Africa: more limited progress toward diversification (IMF 2014).
  - Latin America and the Caribbean: human capital and infrastructure development were crucial to increasing the region’s export share in high-skill products (Ding and Hadzi-Vaskov 2017).

### Drivers of diversification and the role of government
- A conceptual framework (drawing on Cherif and others 2022 and IMF 2014; 2024a) highlights multiple influences on a country’s level of diversification, notably the policy and institutional environment.
- Key government-related constraints include failures to provide:
  - macroeconomic stability through appropriate monetary, fiscal, and macroprudential policy frameworks;
  - quality infrastructure, a skilled workforce, and access to financial services;
  - effective, transparent, and accountable governance, including an appropriate regulatory environment;
  - broad-based opportunities for the entire population, including gender-responsive policies to reduce disparities in human capital accumulation and resource allocation.4
- Private markets may also generate distortions that hamper diversification through “coordination failures” (Hausmann and Rodrik 2003), for example:
  - the need for coordinated creation of ecosystems of producers, specialized suppliers, and workers with specialized skills;
  - coordinated investments to adapt technology, establish market size, reach customers, and create verifiable quality standards.

### Policy approaches: horizontal and vertical strategies
- Two broad types of policy interventions are highlighted (IMF 2016a; 2017):
  - Horizontal policies (broad-based): improve the general business environment across all sectors (infrastructure, human capital, ease of doing business, governance).
  - Vertical policies / industrial policy (targeted): support specific sectors, industries, or technologies (subsidies, tax incentives, directed lending, tailored regulatory regimes) where private incentives may be inadequate.
- The state’s role must balance close engagement with the private sector to identify constraints and sufficient autonomy to enforce discipline and prevent capture (Cherif and Hasanov 2019).

### Criteria and implementation challenges for industrial policies
- Potential industrial policies should be evaluated using four criteria (IMF 2024a):
  - Solid justification: identify the underlying market failure and whether other policies could address it.
  - Well designed: select the best policy instruments and complementary policies needed for effectiveness.
  - Rigorous cost-benefit assessment (ex ante and ex post): include fiscal and administrative costs and indirect costs from potential resource misallocation and trading partner retaliation.
  - Well implemented: consistent with a country’s institutional and administrative capacity; preserve domestic macroeconomic stability, fiscal and external sustainability; and be consistent with World Trade Organization commitments.
- Successful implementation typically requires:
  - robust administrative capacity;
  - comprehensive reforms to address institutional weaknesses, boost transparency, and strengthen governance to deter corruption and rent-seeking;
  - emphasis on maintaining openness to foreign firms and vigorous competition (IMF 2024c; Cherif and others 2022).
- Potential pitfalls of targeted policies (examples from literature and experience) include:
  - research and development subsidies may encourage survival and expansion of low-productivity firms (Acemoglu and others 2018);
  - may oversubsidize applied research (Akcigit, Hanley, and Serrano-Velarde 2021);
  - may crowd out business research and development investment (Boeing 2016);
  - in Germany, may not boost innovation among young firms (Schneider and Veugelers 2010);
  - in China, may yield a sharply negative return and serve mainly to signal political connections (Wei and others 2023; Guo, Guo, and Jiang 2022);
  - in smaller countries, may reduce productivity growth (Davis and Hashimoto 2015).5

### Summary conclusions
- Economic diversification can yield significant rewards for developing economies: sustainable and inclusive growth, enhanced resilience to external shocks, and industrialization and productivity enhancement.
- Diversification is complex and may necessitate significant broad-based reforms, complemented by judiciously designed and effectively implemented industrial policies tailored to country context, capabilities, and institutional conditions.
- The nuances of strategy selection and implementation will be explored further through country case studies in the subsequent section.

*IMF DEPARTMENTAL PAPERS • Economic Diversification in Developing Countries*

### 3. Country Case Studies

### 3. Country Case Studies

### Overview
- Examines diversification successes and challenges in six countries: Costa Rica, Gabon, Georgia, India, Senegal, and Vietnam.
- Countries chosen because their governments were concerned with promoting economic development through diversification and they represent a wide range of geographical regions and income levels.
- Data and methodological limitations prevent comprehensive assessment (for instance, impact evaluations or cost-benefit analyses), but useful common lessons can be drawn.

### Costa Rica
- Context and crisis:
  - GDP contracted by 9.4 percent between 1980 and 1982.
  - Inflation reached about 90 percent in 1982.
  - Public spending equated to 54 percent of GDP in the early 1980s.
- Policy shifts (1980–2018):
  - Replaced a fixed exchange rate with a crawling peg exchange rate regime to stabilize the real exchange rate and provide certainty to exporters.
  - Trade liberalization via accession to the World Trade Organization and numerous preferential trade agreements covering over 80 percent of Costa Rica’s trade.
  - Average applied tariff rate fell from over 11 percent in 1985–89 to around 1 percent.
  - Implemented inward processing regimes.
  - Established free-trade zones (FTZs) attracting export-oriented foreign firms in strategic sectors including high tech; FTZs came to account for a dominant share of total exports and inward FDI.
- Institutions:
  - Costa Rican Investment Promotion Agency (founded 1984) promoted inward high-tech FDI; attracted over 280 high-tech companies by 2017.
  - Trade Promotion Agency simplified and facilitated export procedures and provided training and advisory services.
  - Ministry of Foreign Trade coordinated export promotion with other agencies.
- Human capital and spending:
  - Made substantial investments in education and health (Figure 1 uses 2017 or 2016 data where 2017 unavailable).
- Outcomes:
  - Share of primary commodities in total exports declined from 65 percent in 1980 to 26 percent in 2018.
  - Transitioned to exporters of high-value, knowledge-intensive goods and services (notably semiconductors, computer accessories, medical devices, and information technology and consulting services).
  - Doubling of GDP per capita and dramatic reduction in growth volatility over three decades.
- Key lessons highlighted:
  - Strategic shift toward broad-based trade liberalization and export orientation.
  - Investing in human capital.
  - Establishing specialized institutions to overcome market failures and attract foreign investment, including in high tech.
- Noted caveat:
  - FTZ-driven growth contributed to a dual economy; the rest of the productive sector taxed under the standard corporate tax regime lags in growth.

### Gabon
- Context:
  - Large oil producer since the 1950s; oil initially made Gabon relatively wealthy but limited structural transformation and human capital investment left heavy dependence on oil.
  - Oil production and exports declined in the mid-1990s with negative impacts on economic activity; real per capita incomes declined by more than 20 percent since 1990 (IMF, forthcoming reference in source).
- Development plans:
  - 2012 Plan Stratégique Gabon Émergent (PSGE): envisaged US$12 billion investment over seven years with three strategic axes: (1) diversification via vertical policies (agri-business, mining, forestry), (2) competitiveness via horizontal policies (human capital, governance, doing business, infrastructure), and (3) shared prosperity.
  - Policies to attract investment included tax exemptions, special economic zones (SEZs), and public-private partnerships.
  - 2017 Plan of Economic Recovery recalibrated PSGE with five objectives: (1) maximize revenues and economic financing, (2) control public spending, (3) reinforce sectoral competitiveness, (4) improve business climate to boost private investment, and (5) improve quality of public services.
  - 2021 Transformation Acceleration Plan reoriented objectives post-COVID-19: (1) accelerate structural transformation, (2) boost inclusive growth and employment creation, reducing income inequality, (3) continue fiscal adjustment to open fiscal space, and (4) reinforce external stability.
- Shock and fiscal impact:
  - 2014 oil price shock: 50 percent drop in oil export prices led to cutbacks in oil sector, lower production volumes and export earnings, reduced investment and local employment, and smaller purchases from domestic service providers.
  - Oil revenues constituted over half of total government revenues; government reduced current and capital expenditure and resorted to borrowing.
- Revenue mobilization challenges:
  - Non-oil tax revenues were undermined by (IMF 2019): (1) lower non-oil activity and revenues, (2) weaknesses in tax and customs administration (low operational capacity, difficulty classifying taxpayer groups), and (3) tax policy weaknesses with dependence on taxation of international trade; non-oil corporate income taxes and indirect taxes proved highly volatile.
- Diversification outcomes:
  - Development plans supported diversification into manganese, wood, palm oil, and rubber, with substantial increases in FDI in these sectors (Figure 3 shows contributions to real GDP and FDI over 1990–2022).
  - PSGE enabled completion of wood industrial zone (Zone Nkok), construction of a mineral port, and creation of skill-based professional courses.
  - Plan of Economic Recovery enabled fiscal consolidation and reduced central government debt from 64.2 percent of GDP at end-2016 to 60 percent of GDP in 2019.
  - Transformation Acceleration Plan supported continued diversification, investment, and growth between 2021 and 2023 despite shocks.
- Costs and limitations:
  - Tax exemptions caused estimated revenue losses of 4 to 5 percent of GDP.
  - SEZs and public-private partnerships did not substantially contribute to the domestic economy despite infrastructure and job creation.
- Key insight:
  - Need to balance pursuit of foreign investment with long-term fiscal sustainability; tax incentives can cause substantial revenue loss, and investors often value stability, institutional quality, and inputs over tax incentives.

### Georgia
- Context and reform period:
  - After independence in 1991 Georgia experienced political and economic instability, large public deficits, hyperinflation, and deindustrialization.
  - Case study focuses on 2003 Rose Revolution to 2014 when governance and market-friendly policies expanded services and raised productivity.
- Key measures implemented:
  - Prudent fiscal policies and transition to an inflation-targeting framework.
  - Improvement of public governance and efficiency of public institutions and drastic reduction of corruption.
  - Infrastructure development including extension of the East-West highway and completion of the Baku-Tbilisi-Kars railway.
  - Securing trade agreements to increase global integration and diversify export markets.
  - Establishing a framework for investment funds and primary dealers to expand financial instruments and promote financing for small and medium enterprises.
  - Comprehensive reform of education curricula and continuing training for teachers to mitigate skills mismatches.
- Outcomes (2000–18 and 2000−15 growth accounting):
  - Growth averaged 5.6 percent of GDP in 2000–18, leveling to around 4 percent after the global financial crisis.
  - Services rose to two-thirds of total output; service exports diversified and grew rapidly while merchandise exports remained relatively concentrated.
  - Diversification and faster total factor productivity growth boosted employment and real GDP per capita growth, but unemployment and inequality remained elevated and the economy remained vulnerable to external shocks.
- Subsequent policies:
  - “Produce in Georgia” program (2014) to support domestic production, promote SMEs, foster exports, and attract FDI.
  - Three FTZs established to provide tax incentives and simplified procedures.
  - Power purchase agreements used to attract private investment for hydropower plants.
- Caution:
  - Second wave of reforms raised contingent liabilities and fiscal risks with limited evidence of significantly increased diversification and total factor productivity growth.
- IMF role:
  - IMF supported Georgia with policy advice and technical assistance aligned with market-based approach.

### India
- Reform trajectory:
  - Transformation from early 1990s through 2018 from state-controlled, import-substitution model toward competition-promoting policies.
  - Major reforms: removal of exchange controls, trade liberalization, foreign investment promotion, and dissolution of entry barriers for new firms.
- Macroeconomic focus:
  - Recent focus on maintaining macroeconomic stability and ongoing liberalization.
- Diversification patterns:
  - Manufacturing exports as share of GDP remain less robust than regional peers; production complexity lags peers like China.
  - India has shifted toward producing and exporting more sophisticated capital-intensive goods such as car parts, capital goods, and pharmaceutical products.
  - From 1990 to 2018 the value-added share of the services sector increased nearly 20 percentage points.
- Drivers of services export growth:
  - Reforms improving the business environment and relative lack of state controls on services activities.
  - Investments in education where spending is around 5 percent of GDP.
  - Availability of high-skilled, English-speaking workforce supported modern information and telecommunications and business services exports.
- Knowledge clusters and SEZs:
  - Software technology park in Bangalore (1990) and subsequent knowledge clusters fostered spillovers and supported transitions to modern services.
  - SEZs provided tax exemptions, import duty exemptions, free repatriation of capital investment, royalties, and dividends, and permission for full foreign ownership in exchange for export obligation.
  - SEZs also provided infrastructure and single-window clearance mechanisms.
- Outcomes and limitations:
  - Growth of modern services exports demonstrated by rise of firms like Infosys and Wipro and global capability centers.
  - Service-led growth has limited job creation relative to manufacturing due to lower employment elasticity in services.
  - Quality of education often remains low in rural and poorer areas; many graduates lack market-relevant skills despite a relatively small very well educated group.
- Policy initiatives:
  - Skill India Mission (launched 2015) operationalized via schemes including Pradhan Mantri Kaushal Vikas Yojana and others to tackle skills shortages.
  - Recent initiatives include amendment of Special Economic Zones Act, 2005 and the Production Linked Incentive Scheme across 14 key sectors (as of March 2024 catalyzing investments and job creation across sectors including electronics, pharmaceuticals, and telecom).
- Post-COVID-19:
  - Noteworthy increase in digital services exports accelerated by pandemic-induced digitalization; Digital India initiative played important role.

### Senegal
- Strategy and objectives:
  - Plan Senegal Emergent (PSE) launched 2014 aims for structural changes and increased exports with objective of becoming an emerging market economy by 2035.
- Priority areas and instruments:
  - Modernization of agriculture and promotion of food processing industries.
  - Utilization of SEZs for export promotion.
  - Promotion of tourism.
  - Maximizing domestic value from oil and gas discoveries.
  - Digitalization and enhanced access to financing.
- Achievements:
  - Coordinated and monitored projects across energy, infrastructure, services, mining, agriculture, and social areas.
  - Quadrupling of installed electrical capacity, increased rural electrification rates, major infrastructure projects including Regional Express Train and Blaise Diagne International Airport, significant improvements in agricultural productivity and public health.
  - Returned to strong per capita growth from 2014 onward: average annual growth of 6 percent during 2014–18 and 4.4 percent during 2019–22.
  - Poverty rate reduced by 5 percent between 2011 and 2018 to the lowest levels in the West African Economic and Monetary Union region.
- Structural composition and investment:
  - Services sector share grew from 48 percent (2000–07) to 52 percent (2014–18) of GDP; concerns about prevalence of low-productivity informal employment in services.
  - Private investment reached almost 20 percent of GDP in 2017.
  - FDI remained around 2 percent of GDP, below PSE objective of 6–8 percent.
  - Exports of goods and services amounted to 21.9 percent of GDP as of 2017, with average annual export growth of 8 percent since 2010.
- Reforms and policies:
  - Horizontal reforms: new commercial justice system, new land management system, revisions to investment law, investments in education (spending exceeds 5 percent of GDP) and health, initiatives to help SMEs and improve access to financing.
  - Sector-specific policies addressing low agricultural productivity with tax incentives and targeted policies for groundnuts and sugar; focus on agro-processing, ICT, tourism, textiles, aquaculture, mining, and construction.
  - Infrastructure initiatives: Dakar Regional Campus, Dakar Medical City, regional business hubs.
- SEZs and recommendations:
  - SEZs used to attract manufacturing with generous tax benefits.
  - Multilateral institutions including IMF and World Bank recommended reducing such tax benefits and instead improving business environment and logistics.
- Next phase:
  - PSE third phase (2024–28) aims to boost economic, social, and environmental development through structural transformation, increases in human capital, and governance improvements.
  - Tourism has declined due to inconsistent political support and external shocks; PSE aims to build new tourism hubs and upgrade existing sites.
- Key recommendations emphasized:
  - Greater transparency, competitive practices, and reduction in public subsidies to foster efficient and sustainable growth; foster competition, liberalize prices in regulated markets, reduce tax benefits, and focus on business climate and logistics.

### Vietnam
- Broad arc:
  - Since Doi Moi reforms beginning in 1986 Vietnam transitioned from a centralized economy into a socialist-oriented market economy.
  - Transformation turned Vietnam from one of the poorest countries into one of Asia’s fastest-growing economies with robust domestic demand and export-oriented manufacturing.
- Focus period:
  - Case study highlights experience with diversification focused on period 1986–2015.
- Core of success:
  - Continuous reforms during the Doi Moi process (details continue beyond provided excerpt in source).

*IMF Departmental Papers — Economic Diversification in Developing Countries, Chapter 3: Country Case Studies*

### 1986. These reforms, aimed at adapting to changing conditions, reduced barriers to entry and expansion,

### eddpea - 1986. These reforms, aimed at adapting to changing conditions, reduced barriers to entry and expansion,

### Vietnam: reforms, structural change, and outcomes (1986–2007 and after)
- Reforms beginning in 1986:
  - Reduced barriers to entry and expansion.
  - Liberalized domestic prices and external trade.
  - Significantly curbed inflation.
  - Privatized collective assets in agriculture.
  - Government invited foreign investors into the Vietnamese economy, laying the foundation for modernization and growth.
  - Result: substantial structural shift from a primarily agrarian economy to one increasingly dominated by industry and construction.
- 1986–2005 sectoral policy priorities and instruments:
  - Targeted sectors: heavy industry, natural resource–based industries, and light export-oriented industries.
  - Instruments used:
    - Protective measures such as tariffs, quotas, and export subsidies.
    - Legislation to encourage private businesses and foreign-owned enterprises.
    - Investment in public infrastructure.
    - Restructuring of state-owned enterprises to enhance competitiveness.
  - Persistent challenges: dualistic industrial structure, low industrial labor productivity, and a large, inefficient state-owned enterprise sector.
- Post-2007 (WTO accession) developments:
  - Strategies to boost structural change, industrialization, modernization, and export orientation.
  - Measures: reduction in trade distortions (including export taxes), efforts to boost FDI and associated technology transfers, pivot toward high-tech industries.
  - Challenges noted:
    - Lack of growth among import-competing firms.
    - Negligible spillover impacts from FDI (technology transfer and linkages).
    - Domestic revenue collection fell sharply, by as much as 8 percentage points of GDP in the following years.
    - Causes of revenue decline: tariff reductions, maturation of Vietnam’s oil industry, and widespread tax incentives for foreign investment provided by national and local governments.

### Key lessons from Vietnam’s experience
- Broad-based policies:
  - Policies providing a comprehensive framework of incentives for individual enterprises, irrespective of ownership (including enterprise laws and WTO-related rules), had significant impact.
- Education and stability:
  - Expanding and upgrading the education system and maintaining macroeconomic and political stability contributed significantly to success.
  - Vietnam spends relatively little on education (3 percent of GDP in 2022) but the efficiency of this spending is high.
- Weaknesses in sectoral policy:
  - Past sectoral policies did little to improve overall competitiveness.
  - Absence of local suppliers and supporting industries led to overreliance on imports.
  - Desired FDI spillovers via technology transfer and domestic linkages were rare.
- Overemphasis on specific sectors:
  - Policies focused too heavily on specific sectors/products failed to improve overall enterprise competitiveness.
  - Recommendation: shift focus toward improving overall business competitiveness.

### Cross-country lessons for peer countries (from six case studies)
- General findings:
  - Diversification takes time—often two to three decades for big strides.
  - Macroeconomic stability is a key prerequisite for successful diversification.
  - Successful strategies combine horizontal and well-designed vertical elements.
- Horizontal policies commonly emphasized:
  - Human capital development (often central to diversification efforts).
  - Infrastructure development.
  - Improving institutions and business environment.
  - Reducing trade barriers and promoting international integration.
- Vertical (sector-specific) policies:
  - Targeting broad sectors (including exports) rather than picking national champions helps foster competition and avoid rent-seeking.
  - Tackling underlying market failures directly tends to be more successful and less fiscally risky than broad fiscal incentives.
- SEZs / FTZs experience:
  - Can succeed in addressing business-environment obstacles (bureaucracy, land access, infrastructure).
  - Often create fiscal burdens from possibly ill-targeted tax exemptions.
  - Country examples:
    - Costa Rica: FTZs with income tax exemptions and duty-free imports supported export growth in electronics, medical equipment, and services.
    - Georgia: three FTZs with tax incentives and simplified procedures to attract FDI and support technology transfers.
    - India: software technology parks received fiscal incentives (tax exemptions for five years; exemptions from import duties and licenses for equipment; free repatriation of capital, royalties, dividends; permission for 100 percent foreign ownership) in exchange for export obligations.
    - Senegal: heavy reliance on tax incentives for sectoral development led to significant revenue losses.
- Policy caution:
  - Tax incentives and exemptions can produce substantial revenue losses and may be of questionable value if tax burdens are not the main constraint.
  - Introduction in 2024 of the global minimum tax could render many tax incentives irrelevant or redundant.

### Summary table findings (high-level synthesis from case studies)
- Countries studied: Costa Rica, Gabon, Georgia, India, Senegal, Vietnam.
- Horizontal vs. vertical policy emphasis and outcomes (select highlights):
  - Costa Rica: Horizontal (health and education; trade liberalization) and vertical (FTZs, promotion agencies); Diversified exports? Yes; Structural transformation? Yes.
  - Gabon: Transport infrastructure and SEZs; Limited diversification (too early to tell); Structural transformation? Too early to tell.
  - Georgia: Infrastructure, market liberalization, institution improvements; Limited goods diversification, expansion in services; Structural transformation? Yes, albeit limited.
  - India: Business environment, tertiary education, knowledge clusters; Diversified exports? Yes; Structural transformation? Yes.
  - Senegal: Infrastructure, business environment, agriculture value-added promotion, SEZs; Limited diversification (too early to tell); Structural transformation? Too early to tell.
  - Vietnam: Trade liberalization, investment legal framework, education reforms, SEZs and high-tech parks; Limited goods diversification, expansion in services but limits to services-driven growth; Structural transformation? Yes, albeit limited.

### IMF work on diversification and staff engagement
- Stocktaking of IMF outputs:
  - Analyzed 138 pieces of comprehensive IMF assessment on diversification covering 59 countries (30 low-income developing countries, 10 low- and middle-income countries, and 19 emerging markets).
  - Resulted in 114 single-country and 32 cross-country pieces of analysis.
  - Approximately half of single-country outputs were selected issue papers; remainder included substantive paragraphs in staff reports, boxes, annexes, and working papers.
  - More than a third of outputs focused on countries in fragile situations.
  - Regional distribution: Asia and Pacific Department and African Department had the largest number of outputs.
  - Proportion of country teams handling diversification issues ranged from 35 percent in the African Department to 70 percent in the Middle East and Central Asia Department.
- Three overarching themes from IMF analyses:
  1. Diversification deficits cause macroeconomic volatility: dependence on few exports or slow diversification increases volatility in export proceeds, output, and fiscal revenues, especially in sub-Saharan Africa.
  2. Necessity for diversification: policymakers in low-income developing countries prioritize diversification to support growth, driven by commodity dominance/depletion, dependence on few partners, demographic pressures, competition, and weather-related challenges.
  3. Causes of diversification deficits: infrastructure deficiency, limited capital investment, weak business environments, opportunity inequality, regional security concerns, overvalued currencies, labor issues, and inadequate financial markets.
- IMF policy advice:
  - Favor horizontal policies (2014 board paper alignment): improving human capital, institutions, infrastructure, access to finance; reducing trade barriers; promoting international integration.
  - In some cases recommend well-designed sector-specific policies: developing new sectors, improving product quality, promoting sectors with comparative advantage (e.g., Tanzania and Vanuatu).
  - Warn against distortionary incentives like tax holidays and broad exemptions due to fiscal revenue loss and limited diversification benefits.
- Country-specific guidance highlights:
  - Small states: pursue diversification within competitive sectors, international/regional integration, niche products, and diversified tourism.
  - Countries in fragile situations: address domestic security, strengthen law enforcement and institutions, and reduce corruption as prerequisites for diversification.

### Export Diversification and Export Quality Data Toolkits (Box summary)
- Export product diversification index:
  - Reflects number of products a country exports and concentration of export structure.
  - Lower index values indicate higher export diversification.
  - Constructed as the Theil index of export diversification, consisting of a “between” subindex (extensive margin: how many goods a country exports) and a “within” subindex (intensive margin: concentration of export base).
- Export product quality index:
  - Proxies quality by the markup exports command, measured by export unit value adjusted for production cost differences and relative distance to trading partner (Henn, Papageorgiou, and Spatafora 2013).
  - Higher adjusted unit values imply higher export quality.
  - Index normalized each year to show export quality relative to the rest of the world.

*Italic: IMF DEPARTMENTAL PAPERS • Economic Diversification in Developing Countries (excerpt).*

### Box 1. (continued)

### Box 1. (continued)

### Export diversification and quality (Box Figure 1.1)
- Visual summary presented for six case-study countries: Costa Rica, Gabon, Georgia, India, Senegal, Vietnam.
- Four panels shown:
  - 1. Export Diversification Index, 1962−2014 (Higher value, lower export diversification)
  - 2. Export Diversification Index, Extensive Margin, 1962−2014 (Higher value, lower export diversification)
  - 3. Export Diversification Index, Intensive Margin, 1962−2014 (Higher value, lower export diversification)
  - 4. Export Quality Index, 1976−2014 (Higher value, higher export quality)
- Source: IMF Export Diversification and Quality database.

### IMF policy guidance by exporter type
- Fuel exporters:
  - Recommended responses: diversification, FDI in non-hydrocarbon sectors, flexible exchange rates, and countercyclical fiscal frameworks.
  - Rationale: price volatility, depleting fields, and global climate mitigation trends.
- Other commodity exporters:
  - Recommended responses: industrializing or improving commodity exports quality to address environmental degradation and export concentration.
- Diversified exporters:
  - Recommended responses: increase production quality, implement structural reforms, and maintain prudent macroeconomic policies to preserve stability.
- Cross-cutting recommendation:
  - IMF recommends enabling (horizontal) policies broadly, and sector-specific (vertical) policies in particular cases.

### IMF staff engagement with authorities on diversification — survey findings
- Survey scope and coverage:
  - A survey across four departments with low-income developing country representation collected responses from a total of 124 country teams, inclusive of several emerging markets (Annex 2).
- Stakeholder interest and initiation:
  - More than half of country teams recognized the government’s strong interest in diversification.
  - Approximately 75 percent of teams saw at least some interest in the issue.
  - Diversification discussions were jointly initiated by teams and authorities in 55 percent of the cases.
  - The teams’ advice was generally well received.
- Focus of authorities and teams:
  - Authorities focused on both horizontal policies (enabling environment) and vertical/sectoral policies.
  - About 84 country teams noted existing policies facilitating diversification.
  - IMF teams, however, primarily concentrated on horizontal policies in their recommendations.
- Constraints and enablers for policy traction:
  - Teams identified internal and external factors affecting discussions: political, security, and economic environment; capacity constraints; and data quality issues.
  - Collaboration with experts and other international financial institutions was seen as very supportive.
- Suggested improvements:
  - IMF staff emphasized stronger traction could be achieved through more granular policy advice, best practice examples, and increased analytical work.

### Zooming in on engagement on vertical policies — follow-up survey
- Survey scope:
  - A subsequent survey (Annex 3; Figure 9 panels 1 and 2) covered 58 country teams to deepen understanding of vertical policies and IMF–authority interactions.
- Implementation and focus:
  - Most countries implemented both horizontal and vertical policies.
  - Key horizontal policies: enabling business environment and physical infrastructure improvement.
  - Common vertical policies: promoting FDI, developing SEZs, targeted investment promotion.
- Types of industrial policy interventions:
  - Included targeted small and medium enterprise lending, fiscal incentives, import tariffs, and infrastructure investment through public-private partnerships.
  - Authorities frequently targeted sectors based on local conditions, export potential, and employment share.
- Quantitative results from survey (Figure 9 panels referenced in text):
  - Approximately 60 percent of respondents identified vertical policy as macro-critical for their countries (Figure 9, panel 3).
  - Less than half of respondent teams discussed vertical policies with authorities in the past 24 months preceding the survey (Figure 9, panel 4).
  - "Three to five teams had discussed it in the past 5 years preceding the survey" (text as reported).
  - 62 percent of countries had implemented some form of industrial policy (Figure 9, panel 5).
  - Less than half of the teams expected to discuss the topic in their forthcoming dialogue (Figure 9, panel 6).
- Teams’ policy advice focus and reception:
  - Teams primarily focused on reducing market distortions; recommending policy changes in imports, tax exemptions, and subsidies; and improving business environments.
  - Advice was generally well received and often implemented.
- Requests from IMF teams to strengthen advice:
  - Need for more granular guidance and resources, including case studies, assessment tools, and expert collaboration.
  - Suggested mechanisms: “peer-to-peer” symposiums, guidance grounded in best practice, and deeper partnerships with other international financial institutions.
- Collaboration with development partners:
  - Approximately half of country teams identified development partners contributing advice on vertical policies, but collaboration was described as sporadic.
  - Partners cited included: World Bank, International Finance Corporation, UN Development Programme, Organisation for Economic Co-operation and Development, European Bank for Reconstruction and Development, European Investment Bank, and African Development Bank.
  - Frequency and nature of collaborations varied from recurring policy dialogues to straightforward exchanges of information.

### Key takeaways from staff engagement surveys
- IMF teams proactively engage with country authorities on diversification; stakeholder interest is clear and strong.
- Opportunities to enhance engagement:
  - Provide more granular, sector-specific policy guidance and case studies.
  - Increase analytical work on diversification.
  - Strengthen and systematize collaboration with other international financial institutions and development partners.
- Given IMF resource constraints, leveraging external expertise on vertical policies is important.

### Conclusions (paper-level summary)
- Economic diversification is critical for promoting economic development, resilience, and adaptability.
- Removing barriers to diversification can stimulate faster economic growth, raise per capita incomes, and increase resilience to climate change, technological change, and geoeconomic fragmentation.
- Effective diversification pathways require comprehensive, context-specific strategies combining:
  - Broad-based (horizontal) policies: macroeconomic stability, human capital, infrastructure, reduced trade barriers, international integration.
  - Targeted (vertical) industrial policies to address market failures, develop new sectors, or improve product quality in competitive sectors.
- Lessons from six case studies (Costa Rica, Gabon, Georgia, India, Senegal, Vietnam):
  - Diversification strategies must be tailored to each country’s circumstances.
  - Macroeconomic stability and effective broad-based policies—often emphasizing human capital—are fundamental prerequisites.
  - Well-designed industrial policies can support diversification if they target sectoral bottlenecks rather than picking national champions.
  - Special economic zones (SEZs) have mixed outcomes; tax incentives can cause significant revenue loss with limited returns, posing concerns for fiscally constrained developing economies.
  - All measures require strong governance: strengthen administrative capacity, promote transparency (including publication of tax expenditures), ensure accountability and value for money.

### Annex overview (stocktaking of analytical work)
- Annex Table 1.1 lists countries covered in the stocktaking and their IMF Department affiliations; the stocktaking covers a broad cross-section of countries including low-income developing countries (LIDC), lower-middle-income countries (LMIC), and emerging markets (EM).
- Annex Table 1.2 enumerates single-country outputs (SIP, working papers, boxes/annexes, substantive paragraphs in staff reports) with specific country-year entries across many countries.

*Source: eddpea - Box 1. (continued), IMF DEPARTMENTAL PAPERS • Economic Diversification in Developing Countries.*

### Annex IIV. Trade Policy and Competitiveness: Agriculture in Nigeria

### Annex IIV. Trade Policy and Competitiveness: Agriculture in Nigeria

### Catalog entry and related IMF departmental outputs
- Country: Nigeria
- Year: 2015
- Country Group: LIDC
- Dept.: AFR
- Document Type: SIP
- Title: Promoting Economic Transformation

### Context within Annex Table 1.2 (selected adjacent entries)
- Oman — 2017 — EM — MCD — SIP — Analysis of the Tourism Sector’s Potential to Diversify the Economy
- Pakistan — 2016 — LMIC — MCD — SIP — Improving Pakistan’s Competitiveness and Business Climate
- Palau — 2014 — EM — APD — SIP — Promoting Tourism and Growth in Palau
- Papua New Guinea — multiple entries for 2015–2017 — LIDC — APD — various Document Types and Titles including "Economic Diversification Appendix I in Article IV staff report" and "Economic diversification"
- Qatar — 2014, 2015, 2017, 2018 — EM — MCD — mix of Substantive paragraph in staff report and SIP entries (examples: "2014 Article IV Consultation - Staff Report"; "Breaking Down Qatar’s Rapid Growth: Input Growth or Productivity or Both?"; "Qatar: Enhancing Non-Hydrocarbon Revenue to Support Fiscal Consolidation and the National Development Strategy")
- Rwanda — 2014, 2017 — LIDC — AFR — Box/annex/chapter in Regional Economic Outlook; SIP — examples include "Rwanda Selected Issues" and "Sub-Saharan Africa Fiscal Adjustment and Economic Diversification"
- Additional countries listed through #114 (Zimbabwe 2017) with varying years, departments (AFR, APD, MCD, WHD), document types (SIP, Other, Box/annex, Substantive paragraph), and titles (examples provided in the table)

### Annex Table 1.3 — Regional Outputs (selected items)
- 1 — 2014 — AFR — Working paper — How Solid Is Economic Growth in the East African Community?
- 2 — 2015 — AFR — SIP — Growth, Structural Transformation, and Diversification in the WAEMU
- 4 — 2016 — AFR — Box/annex in staff report — Reaping the Benefits from Export Diversification
- 6 — 2017 — AFR — Box/annex/chapter in Regional Economic Outlook — Economic Diversification in Sub-Saharan Africa.
- 14 — 2018 — APD — Working paper — Economic Diversification in Pacific Island Countries: Implications for Economic Growth and Volatility
- 19 — 2016 — MCD — Book — Breaking the Oil Spell: The Gulf Falcons’ Path to Diversification
- 23 — 2015 — WHD — Box/annex/chapter in Regional Economic Outlook — Long-Run Growth in Latin America and the Caribbean: The Role of Economic Diversification and Complexity
- 26 — 2018 — WHD — Working paper — Economic Benefits of Export Diversification in Small States

### Annex Table 1.4 — Other IMF Research Papers (selected references)
- Papageorgiou, Spatafora, and Wang (2015) — Working paper — Coverage: Asia, sub‐Saharan Africa, and Europe
- McIntyre and others (2018) — Working paper — Coverage: Small states
- Kazandjian and others (2016) — Working paper — Coverage: Advanced, emerging and developing Economies
- IMF (2016b) — Report — Coverage: Low-income developing countries
- Sustaining Long-Run Growth and Macroeconomic Stability in Low-Income Countries - The Role of Structural Transformation and Diversification – Background Notes, IMF (2014) — Policy paper — Coverage: Low-income developing countries
- IMF (2014) — Policy paper — Coverage: Low-income developing countries

### Annex 2 — Survey of Country Teams on Traction with Authorities (questionnaire highlights and metadata)
- Survey carried out: November 2018
- Core questionnaire items (enumerated):
  - 1. Department
  - 2. Country
  - 3. Has your team discussed issues of economic diversification with the country authorities in the past 24 months? (yes/no)
  - 4. Were the discussions first initiated by: a. Authorities b. The team c. Jointly d. Unsure
  - 5. Did your dialogue focus on: a. Diagnostics b. Impact of diversification on macroeconomic outcomes c. Policy advice d. All of the above e. Other
  - 7. Do the authorities have set of policies to facilitate diversification? (yes/no)
  - 8. If yes, characterize policies: a. Horizontal b. Vertical c. Mix of horizontal and vertical d. Unsure
  - 9. Has the team proposed a set of policies to facilitate diversification? (yes/no)
  - 11. How were your analysis and recommendations received? a. Very negative response b. Not well received c. Indifferent d. Well received e. Very well received
  - 14. Please quantify the time commitment by your team to work on economic diversification on average over the past 24 months (full-time equivalent/year)
  - 17. Do you plan to discuss economic diversification in your forthcoming dialogue with the country authorities? (yes/no)
  - 18. How would you judge the general interest of the government in economic diversification? a. Very weak b. Weak c. Some interest d. Strong interest e. Very strong interest
  - 19. How would you judge the general interest of the private sector ...? (same response scale plus "Do not know")
  - 20. Is your team aware of the IMF Diversification Toolkit?
  - 21. What resource would be most helpful in supporting discussions on diversification in future work (seminars, collaboration with an expert on the matter, etc.)?
  - 22. Other comments or suggestions?

### Annex 3 — Survey of Country Teams on Engagement on Vertical Policies (questionnaire highlights and metadata)
- Survey carried out: 2019
- Core questionnaire items (enumerated):
  - 1. Department
  - 2. Country
  - 3. Name and email address (person filling in the survey)
  - 4. Has your team discussed vertical industrial policies with the country authorities in the past 24 months? (yes/no)
  - 5. If no, main reasons (choose all that apply): a. Not relevant/other priorities b. No interest from authorities c. Resource constraints d. Limited IMF guidance e. No expertise within the team f. Other
  - 6. If yes, were the discussions first initiated by: a. Authorities b. The team c. Jointly d. Unsure
  - 7. Did your dialogue focus on: a. Diagnostics b. Impact of industrial policies on macroeconomic outcomes c. Policy advice d. Other
  - 9. Does your team consider vertical industrial policies to be macro-critical for your country? (yes/no)
  - 10. Has the country put in place industrial policies in the past five years?
  - 11. If yes, characterize these policies as (choose all that apply): a. Horizontal (with subitems i–vii) and b. Vertical (with subitems i–ix)
  - 13. Has the country team provided advice on vertical industrial policies to the authorities? (yes/no)
  - 15. How were your analysis and recommendations received? a. Very negative response b. Not well received c. Indifferent d. Well received e. Very well received
  - 18. To your knowledge, which other institutions have provided advice on vertical industrial policies in your country?
  - 19. How do you assess the collaboration between the country team and representatives of those institutions? a. No collaboration b. Some collaboration c. Close collaboration
  - 21. Do you plan to discuss vertical industrial policies in your forthcoming dialogue with the country authorities? (yes/no)
  - 22. How would you judge the general interest of the government in vertical industrial policies? a. Very weak b. Weak c. Some interest d. Strong interest e. Very strong interest
  - 23. How would you judge the general interest of the private sector ...? (same response scale plus "Do not know")
  - 24–26. Questions on resources and areas of focus for additional support (e.g., special economic/industrial zones, tax incentives, exports and global value chain participation)

*Source: IMF staff.*

### References

### eddpea - References

### Major referenced themes
- Fiscal policy and the current account
  - Abbas, S. M. Ali, Jacques Bouhga-Hagbe, Antonio Fatás, Paolo Mauro, and Ricardo C. Velloso. 2011. “Fiscal Policy and the Current Account.” IMF Economic Review 59 (4): 603–29.
  - Frenkel, Jacob A., and Assaf Razin. 1986. “Fiscal Policies in the World Economy.” Journal of Political Economy 94 (3): 564–94.

- Industrial policy, diversification, and structural transformation
  - Cherif, Reda, and Fuad Hasanov. 2019. “The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy.” IMF Working Paper 2019/74.
  - Cherif, Reda, Fuad Hasanov, Nikola Spatafora, Rahul Giri, Dimitre Milkov, Saad N. Quayyum, and others. 2022. “Industrial Policy for Growth and Diversification: A Conceptual Framework.” IMF Departmental Paper 2022/017.
  - Evenett, Simon, Adam Jakubik, Fernando Martín, and Michele Ruta. 2024. “The Return of Industrial Policy in Data.” IMF Working Paper 2024/001.
  - Criscuolo, Chiara, Nicolas Gonne, Kohei Kitazawa, and Guy Lalanne. 2022. “An Industrial Policy Framework for OECD Countries: Old Debates, New Perspectives.” OECD Science, Technology and Industry Policy Papers 127.

- Economic diversification, complexity, and export dynamics
  - Papageorgiou, Chris, and Nikola Spatafora. 2012. “Economic Diversification in LICs: Stylized Facts and Macroeconomic Implications.” IMF Staff Discussion Note 2012/13.
  - Hausmann, Ricardo, and Dani Rodrik. 2003. “Economic Development as Self-Discovery.” Journal of Development Economics 72 (2): 603–33.
  - Hidalgo, César A., and Ricardo Hausmann. 2009. “The Building Blocks of Economic Complexity.” Proceedings of the National Academy of Sciences 106 (26): 10570–75.
  - Henn, Christian, Chris Papageorgiou, and Nikola Spatafora. 2013. “Export Quality in Developing Countries.” IMF Working Paper 2013/108.

- Natural resources, resource curse, and revenue diversification
  - Frankel, Jeffrey. 2012. “The Natural Resource Curse: A Survey.”
  - Sachs, Jeffrey D., and Andrew M. Warner. 1995. “Natural Resource Abundance and Economic Growth.” NBER Working Paper 5398.
  - van der Ploeg, Frederick. 2011. “Natural Resources: Curse or Blessing?” Journal of Economic Literature 49: 366–420.
  - International Monetary Fund (IMF). 2019. “Revenue-Friendly Diversification in Gabon.” IMF Country Report 19/390.

- Innovation, R&D, and technology diffusion
  - Acemoglu, Daron, Ufuk Akcigit, Harun Alp, Nicholas Bloom, and William Kerr. 2018. “Innovation, Reallocation, and Growth.” American Economic Review 108 (11): 3450–91.
  - Akcigit, Ufuk, Douglas Hanley, and Nicolas Serrano-Velarde. 2021. “Back to Basics: Basic Research Spillovers, Innovation Policy, and Growth.” Review of Economic Studies 88 (1): 1–43.
  - Boeing, Philipp. 2016. “The Allocation and Effectiveness of China’s R&D Subsidies - Evidence from Listed Firms.” Research Policy 45 (9): 1774–89.
  - Guo, Di, Yan Guo, and Kun Jiang. 2022. “Government R&D Support and Firms’ Access to External Financing: Funding Effects, Certification Effects, or Both?” Technovation 115 (C).

- Services exports, IT clusters, and country-specific export lessons
  - Rao, P. M., and M. H. Balasubrahmanya. 2017. “The Rise of IT Services Clusters in India: A Case of Growth by Replication.” Telecommunications Policy 41 (2): 90–105.
  - Saxenian, AnnaLee. 2001. “Bangalore: The Silicon Valley of Asia?” Stanford Centre for International Development Working Paper 91.
  - Gajbhiye, Dhirendra, Sujata Kundu, Rajas Saroy, Deepika Rawat, Alisha George, Omkar Vinherkar, and Khushi Sinha. 2024. "What Drives India’s Services Exports?" Reserve Bank of India Bulletin, April.
  - Sahoo, Pravakar, Ranjan Kumar Dash, and Prabhu Prasad Mishra. 2013. “Determinants of India’s Services Exports.” IEG Working Paper 333.

- Regional and country case studies of diversification and development
  - Baum, Anja. 2020. “Vietnam’s Development Success Story and the Unfinished SDG Agenda.” IMF Working Paper 2020/31.
  - Eckardt, Sebastian, Deepak Mishra, and Viet Tuan Dinh. 2018. “Vietnam’s Manufacturing Miracle: Lessons for Developing Countries.” Brookings.
  - McIntyre, Arnold, Mike Xin Li, Ke Wang, and Hanlei Yun. 2018. “Economic Benefits of Export Diversification in Small States.” IMF Working Paper 2018/86.
  - Kireyev, Alexei. 2018. “Macro-Structural Reform and Emergence: Lessons for Senegal.” In Race to the Next Income Frontier.

- Trade policy, foreign investment, and geoeconomic fragmentation
  - International Monetary Fund (IMF). 2023a. “Geoeconomic Fragmentation and Foreign Direct Investment.” In World Economic Outlook. April.
  - Harrison, Ann, and Andres Rodríguez-Clare. 2010. “Trade, Foreign Investment, and Industrial Policy for Developing Countries.” In Handbook of Development Economics.
  - Corden, W. Max, and J. Peter Neary. 1982. “Booming Sector and De-Industrialisation in a Small Open Economy.” Economic Journal 92 (368): 825–48.

- Education, governance, and institutional factors related to diversification
  - Boman, Björn. 2022. “Vietnam’s Exceptional Educational Achievement: A Thematic Review of the Emerging Literature.” Discover Education 1 (14).
  - OECD. 2019. OECD Reviews of Evaluation and Assessment in Education: Georgia.
  - OECD. 2022. OECD Review of the Corporate Governance of State-Owned Enterprises in Viet Nam.

### Types of IMF publications cited
- IMF Working Papers, IMF Staff Discussion Notes, IMF Departmental Papers, IMF Policy Papers, IMF Country Reports, and World Economic Outlook entries are extensively cited, including:
  - IMF Working Paper 23/078.
  - IMF Working Paper 2019/74.
  - IMF Departmental Paper 2022/017.
  - IMF Country Report 19/390.
  - IMF Policy Paper 24/8.
  - IMF How-To Note 24/02.
  - IMF Staff Discussion Note 23/007.
  - IMF Working Paper 2024/001.

### Key methodological and conceptual references
- Economic complexity and self-discovery frameworks: Hausmann et al. 2013; Hidalgo and Hausmann 2009; Hausmann and Rodrik 2003.
- Analysis of natural resources and the resource curse: Frankel 2012; Sachs and Warner 1995; van der Ploeg 2011.
- Industrial policy debates and frameworks: Cherif and Hasanov 2019; Cherif et al. 2022; Rodrik 2014.
- R&D and innovation policy evaluation: Acemoglu et al. 2018; Akcigit et al. 2021; Boeing 2016; Davis and Hashimoto 2015.

*Economic Diversification in Developing Countries: Lessons from Country Experiences with Broad-Based and Industrial Policies, DP/2024/006 — References*

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_Source: https://www.imf.org/-/media/files/publications/dp/2024/english/eddpea.pdf_