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Double Diversification with an Application to Iceland

Author

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  • Thorvaldur Gylfason
  • Per Magnus Wijkman

Abstract

Excessive concentration increases national risk in an uncertain world. This paper views economic and political diversification as an essential aspect of national risk management aimed at promoting efficiency, growth, and welfare. The paper first presents economic and political diversification side by side in a cross-country framework and discusses how they interact and encourage more stable long-run economic growth. Thereafter, the paper considers Iceland as a case study of the intertwined effects of insufficient economic and insufficient political diversification. Dominated for decades by the fishing industry, the Icelandic economy is more diversified than before following the financial crisis of 2008 with tourism now generating more foreign exchange than fisheries. The paper ends with some general policy conclusions.

Suggested Citation

  • Thorvaldur Gylfason & Per Magnus Wijkman, 2015. "Double Diversification with an Application to Iceland," CESifo Working Paper Series 5386, CESifo.
    • Handle: RePEc:ces:ceswps:_5386
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    References listed on IDEAS

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    1. repec:bla:jecsur:v:14:y:2000:i:5:p:629-53 is not listed on IDEAS
    2. Aghion, Philippe & Banerjee, Abhijit, 2005. "Volatility and Growth," OUP Catalogue, Oxford University Press, number 9780199248612.
    3. Martin Paldam, 2000. "Social Capital: One or Many? Definition and Measurement," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 629-653, December.
    4. Thorvaldur Gylfason, 2014. "Constitution on Ice," CESifo Working Paper Series 5056, CESifo.
    5. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563.
    6. Thorvaldur Gylfason, 2006. "How Do India and China Grow?," Challenge, Taylor & Francis Journals, vol. 49(1), pages 74-89.
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    Cited by:

    1. Eric W. Djimeu & Luc-Désiré Omgba, 2018. "Oil windfalls might not be the problem in oil-producing countries: evidence from the impact of oil shocks on export diversification," Working Papers hal-04141788, HAL.
    2. Karanfil, Fatih & Omgba, Luc Désiré, 2023. "The energy transition and export diversification in oil-dependent countries: The role of structural factors," Ecological Economics, Elsevier, vol. 204(PB).
    3. Djimeu, Eric W. & Omgba, Luc Désiré, 2019. "Oil windfalls and export diversification in oil-producing countries: Evidence from oil booms," Energy Economics, Elsevier, vol. 78(C), pages 494-507.

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    More about this item

    Keywords

    diversification; concentration; democracy; Iceland;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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