Diversification vs. Specialization in Economic Development: A Comment
13 Pages Posted: 19 Jul 2015 Last revised: 6 Oct 2015
Date Written: October 6, 2015
Participation in the modern, globalized economy necessarily entails some degree of economy-level specialization in terms of the relative intensities of activities, since all economies – and especially developing economies – are small relative to the global economy as a whole. At the same time, it has been firmly established that development involves massive diversification of economic activities – including of exports. Accordingly, there is a complex interplay between diversification and specialization in the development process. For economic policy formulation, the issue is how much weight to give to diversification versus to specialization? This commentary argues that specialization (by individual economic agents) will happen naturally in an environment characterized by expanding diversity at the economy level. By achieving diversity at the system level, policy enables specialization at the individual agent level.
Keywords: comparative advantage, specialization, diversification, development
JEL Classification: F10, F13, O10
Suggested Citation: Suggested Citation