Natural resource dependence: a macroeconometric model for the United Arab Emirates

Abstract

This study constructs a macroeconometric model to analyse the problems of regions that exhibit dependence on nonrenewable resources (e.g. oil). The role of the oil sector in the UAE and the extent to which it subsidizes the rest of the economy is evaluated. The macroeconometric model constructed consists of four sectors, has 25 equations and is evaluated and calibrated employing dynamic simulation techniques. Counter–factual and policy experiments are carried out and the instruments–targets approach is used to analyse the impact of the oil sector. The article highlights the continued dependence of the UAE economy on oil and the urgency to diversify the economy and securing more nonhydrocarbon sources of revenue.

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