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Economic Diversification in the GCC; Past, Present, and Future

Author

Listed:
  • Tim Callen
  • Reda Cherif
  • Fuad Hasanov
  • Amgad Hegazy
  • Padamja Khandelwal

Abstract

Abstract: The economies of the six Gulf Cooperation Council (GCC) countries are heavily reliant on oil. Greater economic diversification would reduce their exposure to volatility and uncertainty in the global oil market, help create jobs in the private sector, increase productivity and sustainable growth, and help create the non-oil economy that will be needed in the future when oil revenues start to dwindle. The GCC countries have followed many of the standard policies that are usually thought to promote more diversified economies, including reforms to improve the business climate, the development of domestic infrastructure, financial deepening, and improvements in education. Nevertheless, success to date has been limited. This paper argues that increased diversification will require realigning incentives for firms and workers in the economies—fixing these incentives is the “missing link” in the GCC countries’ diversification strategies. At present, producing non-tradables is less risky and more profitable for firms as they can benefit from the easy availability of low-wage foreign labor and the rapid growth in government spending, while the continued availability of high-paying and secure public sector jobs discourages nationals from pursuing entrepreneurship and private sector employment. Measures to begin to address these incentive issues could include limiting and reorienting government spending, strengthening private sector competition, providing guarantees and financial support for those firms engaged in export activity, and implementing labor market reforms to make nationals more competitive for private sector employment.

Suggested Citation

  • Tim Callen & Reda Cherif & Fuad Hasanov & Amgad Hegazy & Padamja Khandelwal, 2014. "Economic Diversification in the GCC; Past, Present, and Future," IMF Staff Discussion Notes 14/12, International Monetary Fund.
  • Handle: RePEc:imf:imfsdn:14/12
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    Citations

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    Cited by:

    1. repec:wbk:wbpubs:29721 is not listed on IDEAS
    2. Khalifa, Ahmed & Caporin, Massimiliano & Costola, Michele & Hammoudeh, Shawkat, 2017. "Systemic risk for financial institutions of major petroleum-based economies: The role of oil," SAFE Working Paper Series 172, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    3. repec:eee:intfin:v:57:y:2018:i:c:p:17-43 is not listed on IDEAS
    4. Habib M. Alshuwaikhat & Ishak Mohammed, 2017. "Sustainability Matters in National Development Visions—Evidence from Saudi Arabia’s Vision for 2030," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-15, March.
    5. repec:neo:journl:v:14:y:2018:i:1:p:2-13 is not listed on IDEAS
    6. repec:rfa:bmsjnl:v:3:y:2017:i:3:p:69-81 is not listed on IDEAS
    7. Stuti SAXENA, 2016. "From Oil to Non-Oil: How are Private Higher Education Institutions Confronting with Quality Issues?," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(4), pages 290-299, December.
    8. Magda Kandil & Assil El Mahmah, 2017. "Fiscal Consolidation and UAE Vision 2021: A Small Scale Macroeconomic Model Approach," Working Papers 1151, Economic Research Forum, revised 11 Jan 2003.
    9. Collins, Ross D. & Selin, Noelle E. & de Weck, Olivier L. & Clark, William C., 2017. "Using inclusive wealth for policy evaluation: Application to electricity infrastructure planning in oil-exporting countries," Ecological Economics, Elsevier, vol. 133(C), pages 23-34.
    10. Eulaiwi, Baban & Al-Hadi, Ahmed & Taylor, Grantley & Al-Yahyaee, Khamis Hamed & Evans, John, 2016. "Multiple directorships, family ownership and the board nomination committee: International evidence from the GCC," Emerging Markets Review, Elsevier, vol. 28(C), pages 61-88.
    11. Miniaoui, Hela & Schilirò, Daniele, 2016. "Innovation and Entrepreneurship for the growth and diversification of the GCC Economies," MPRA Paper 71898, University Library of Munich, Germany.

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