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Country diversification

If history and the current crisis teach us anything, one of the most important lessons is: country's development should not focus on one or two narrow strategies; just like investment portfolio, diversification in development strategies can significantly reduce country risk, putting the country on a smooth growth path.

For this reason, China should move out of its current export-led manufacturing intensive development strategy and allocate more resources to human capital development and improving the quality of its domestic institutions;  Russia should not rely too much on its natural resources; India should avoid over-specialization in services.

Because of its heavy reliance on energy export, with crude oil falling over 75% from its peak, Russia is apparently in big trouble now.

[Russia's Crisis of Confidence Chart]

Adam Smith told us specialization is good;  but over-specialization reverses the benefits of specialization.


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