Deindustrialization and Economic Diversification

19 Pages Posted: 28 Jan 2014 Last revised: 29 Jan 2014

See all articles by Tiago Berriel

Tiago Berriel

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Marco Bonomo

Insper Institute of Education and Research

Carlos Carvalho

Asset 1 Investment Company; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Date Written: January 26, 2014

Abstract

We derive a measure of the degree of inefficiency of the production structure of an economy by casting its optimal sectoral composition as the outcome of a portfolio allocation problem, in the spirit of Koren and Tenreyro (2004). We use the framework to construct measures of inefficiency using sectoral data for 194 countries, document the patterns of inefficiency by region, income group etc., and investigate which countries might have reasons to pursue "industrial policies" to improve on the allocation of economic activity across sectors. We then undertake an exploratory analysis of the empirical content of our measure of inefficiency, and find that it correlates negatively with measures of good institutions and governance, broadly in line with the evidence in Hall and Jones (1999).

Keywords: diversification, deindustrialization, growth, portfolio problem, inefficiency

JEL Classification: O14, O25

Suggested Citation

Berriel, Tiago and Bonomo, Marco and Carvalho, Carlos, Deindustrialization and Economic Diversification (January 26, 2014). Available at SSRN: https://ssrn.com/abstract=2385735 or http://dx.doi.org/10.2139/ssrn.2385735

Tiago Berriel

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Marco Bonomo

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Carlos Carvalho (Contact Author)

Asset 1 Investment Company ( email )

Avenida Juscelino Kubitschek, 1600/Conj 52
São Paulo, São Paulo
Brazil

HOME PAGE: http://www.asset1.com.br

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

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