Diversified Development:Making the Most of Natural Resources in Eurasia

Surveys Finland, Saudi Arabia, and Chile, countries using diverse sets of industrial policies and recently implementing measures to encourage innovation through cluster-based interventions. These measures seem to have worked in Finland, but much less so in Saudi Arabia and Chile. With its aggressive infrastructure investments, Saudi Arabia did successfully foster activities associated with natural resources, such as petrochemicals, fertilizers, steel, and refining, while Chile has successfully run an industrial policy to foster activities that had a sizeable asset base: natural resource-based sectors such as forestry, salmon, and wine. Industrial policy appears to work best when consistent with a country’s endowments of natural, human, physical, and institutional capital, hence the necessity of diversifying endowments so as to diversify production and export structures. Economic diversification takes a long time, however, and a strong plan would include implementation of policies to improve education and health, infrastructure and communications, and regulations for private enterprise.