Industrial Performance and Economic Diversification: The Role of Innovation in Resource-Dependent Economies

This study examined the relationship between industrial performance, innovation and economic diversification in resource-dependent economies. Specifically, it assessed the effect of industrial performance on innovation and economic diversification and investigated the role of innovation in the industrial performance-diversification relationship. Panel data were analysed using fixed- and random-effects regression techniques, with the appropriate estimator selected using the Hausman test. The findings show that industrial performance has a negative and statistically significant effect on both innovation and economic diversification. However, innovation exerts a positive and significant effect on economic diversification, suggesting that technological adoption can support the expansion of economic activities beyond resource-based sectors. Control of corruption and political stability also demonstrate positive effects on diversification, while foreign direct investment records a negative effect. The findings suggest that industrial expansion in resource-dependent economies has not sufficiently generated technological upgrading or broad-based structural transformation. The study therefore recommends innovation-oriented industrial policies, stronger domestic value addition, improved institutional quality, and foreign investment strategies that promote technology transfer and linkages with non-resource sectors.