The role of economic diversification in controlling macroeconomic volatility and stimulating total factor productivity growth

Author

Abdella Eldarassi, Southern Illinois University CarbondaleFollow

Date of Award

5-1-2020

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Sylwester, Dr. Kevin

Abstract

This dissertation consists of three chapters dealing with a vital economic issue, especially in developing countries, namely diversification. The first chapter deals with the effect of economic diversification on the effectiveness of policies and governance to control macroeconomic volatility. Besides, we test the effect of the MENA region on these relationships. We employed a Generalized method of moments and fixed effect methods to estimate the model using data from 63 developing countries including 16 MENA. The results suggest that conservative monetary and fiscal policies, and more openness help to reduce volatility. Similarly, good governance helps developing countries to achieve more macroeconomic stability. As the role of diversification, the findings show that more diversified countries have less volatility, and diversification promotes the effectiveness of policies and governance to reduce volatility. However, this role will be less if the country belongs to the MENA region. The second chapter studies the relationship between economic diversification and total factor productivity in Arab economies from 1995 to 2016. also, we try to find out whether governments' attempts to influence TFP are affected by the degree of economic diversification? This paper also highlights differences, in terms of the type and magnitude, between oil-exporter and non-oil-exporter countries. We use dynamic panel data, GMM, and fixed effect estimations. the main findings show that economic diversification has a positive impact on TFP, this effect differs between countries according to the level of FDI, institutional quality, policies، and the size of the oil sector. The third chapter addresses one of the most important potential determinants of economic diversification, which is the foreign direct investment? We investigate the ability of foreign investments to help Arab countries to diversify their economies in terms of both output and export diversification. Similarly, we try to investigate the role of oil existence on the relationship between foreign direct investment and economic diversification. The results suggest that, in general, whereas FDI has a positive effect on export diversification, it may hurt output diversification.