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Diversifying the economy from oil dependence, while maintaining a high level of income, requires more than standard growth policy prescriptions, which include an enabling business environment, macroeconomic stability, and minimum state intervention and regulations. We argue that “the leading hand of the state” is necessary to fix market failures and develop new industries and markets. In particular, the state should create and support export-oriented sophisticated industries while imposing a strict accountability framework based on market signals. The key to success is the creation of technologies and innovation by domestic firms and a push to leapfrog to the technological frontier at an early stage of development. Policies to do so could still ‘make a miracle’ in many countries today as they did in Singapore and other East Asian economies in the past.

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Reda Cherif and Fuad Hasanov