Economic Diversification and Sustainable Development of GCC Countries

Abstract

For decades now, exports and imports have grown more rapidly than domestic production. This is a strong indication that, besides the rapid growth of foreign trade in final goods, trade in intermediates is becoming increasingly important. For this reason, an input-output approach is more appropriate for any analysis of diversification than a traditional approach based purely on macroeconomic data. This article analyses economic diversification in Gulf Cooperation Council (GCC) countries using data from input-output tables which are an integral part of the national accounts. We compare the performance of the GCC economies with that of a reference case, Norway, which is considered to have successfully diversified its economy despite having a large oil resource base. It also assesses these countries’ relative progress on sustainable development using a measure of the World Bank, adjusted net savings, which evaluates the true rate of savings in an economy after accounting for investments in physical and human capital, depletion of natural resources and damage from environmental pollution. The article concludes that GCC countries have, contrary to expectation, collectively performed relatively well on diversification, but their performance on sustainable development varies.

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