Factor Accumulation and the Determinants of TFP in the GCC

GDP growth in the GCC has been considerably higher than in advanced economies or other oil exporters since 1986. The paper shows that the GCC countries have swiftly accumulated large stocks of physical capital but the population increase and the shift away from oil meant that capital intensity actually decreased or remained roughly constant. On the other hand, the efforts that have been made to improve human capital would have had positive effects on growth, though educational attainment remains below what is achieved by countries with similar levels of income. A growth accounting exercise suggests as a result that the development of Bahrain and Saudi Arabia was hampered by declining TFP, while TFP growth in Qatar and the U.A.E. would have been low. One potential explanation is that the kind of capital that has been accumulated in the region (aircraft, computer equipment, electrical equipment) is not fully productive because the labor force is not educated enough. The paper also discusses the lessons from the empirical growth literature for the GCC. The poor quality of institutions and the large size of government consumption, both of which are possible symptoms of a resource curse, could explain the disappointing TFP growth.