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Can the UAE Avoid the Oil Curse by Economic Diversification?

Author

Listed:
  • Haouas, Ilham

    (Abu Dhabi University)

  • Heshmati, Almas

    (Jönköping University)

Abstract

Recent research conclude that the GCC economies have failed to address the oil curse. They are far behind other countries, especially those in the G7, which possess huge reserves of oil wealth but have undertaken economic diversification to correct the ill-effects of an oil curse. This paper takes an in-depth look into the UAE economy as a model but also as a reminder of the struggles ahead. The findings support the fact that the UAE is facing an oil curse. Declining levels of total factor productivity, GDP volatility, negative returns on investment, and a labor force that is too reliant on government's supply of jobs are among the many reasons that support the thesis. The UAE has made good progress in recent years to diversify its economy. However, the drivers of economic growth in the UAE are vulnerable to external shocks outside of the Emirate's control. It is now critical that the UAE take steps to mitigate economic disruptions that might result from these shocks. In this case study the UAE economic performance is examined, and a data-driven roadmap for sustainable growth is suggested. The analysis shows that greater efforts are needed to stimulate the diversification of the production base by encouraging increased domestic, especially private, investment. Well-targeted policies should be adopted to accelerate reform and facilitate the involvement of the private sector in the economy.

Suggested Citation

  • Haouas, Ilham & Heshmati, Almas, 2014. "Can the UAE Avoid the Oil Curse by Economic Diversification?," IZA Discussion Papers 8003, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8003
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    File URL: https://docs.iza.org/dp8003.pdf
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    References listed on IDEAS

    as
    1. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    2. Denise Stanley & Sirima Bunnag, 2001. "A new look at the benefits of diversification: lessons from Central America," Applied Economics, Taylor & Francis Journals, vol. 33(11), pages 1369-1383.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Askari, Hossein & Jaber, Mohamed, 1999. "Oil-exporting countries of the Persian Gulf: What happened to all that money?," Journal of Energy Finance & Development, Elsevier, vol. 4(2), pages 185-218.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Driouchi, Ahmed, 2014. "Testing of Natural Resources as Blessing or Curse to the Knowledge Economy in Arab Countries," MPRA Paper 58598, University Library of Munich, Germany.
    2. Arshad Hayat & Muhammad Tahir, 2021. "Natural Resources Volatility and Economic Growth: Evidence from the Resource-Rich Region," JRFM, MDPI, vol. 14(2), pages 1-17, February.
    3. Keisuke Kokubun, 2017. "World Income Inequality Between and Within Regions: 1820-2008," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(8), pages 1-11, August.
    4. 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.
    5. Yahya Z. ALSHEHHI & Jozsef POPP, 2017. "Sectoral Analysis: Growth Accounting Of Tertiary Industries," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 14, pages 221-230, August.
    6. Yahya Z. ALSHEHHI & Judit OLÁH, 2017. "Sectorial Analysis: Growth Accounting Of Secondary Industries," Network Intelligence Studies, Romanian Foundation for Business Intelligence, Editorial Department, issue 9, pages 39-45, June.
    7. Suzanna Elmassah & Eslam A. Hassanein, 2022. "Can the Resource Curse for Well-Being Be Morphed into a Blessing? Investigating the Moderating Role of Environmental Quality, Governance, and Human Capital," Sustainability, MDPI, vol. 14(22), pages 1-21, November.
    8. Ahmad Al Humssi & Maria Petrovskaya & Milana Abueva, 2022. "Modelling the Impact of World Oil Prices and the Mining and Quarrying Sector on the United Arab Emirates’ GDP," Mathematics, MDPI, vol. 11(1), pages 1-22, December.

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    More about this item

    Keywords

    growth accounting; TFP; oil curse; economic diversification; UAE;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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