Diversification and the Resource Curse: An Econometric Analysis of GCC Countries
This research explores the effects of significant global economic shocks, such as the 2008 Global Financial Crisis and the 2020 COVID-19 pandemic, on GDP growth in the Gulf Cooperation Council (GCC) nations. Employing a dynamic generalized method of moments (GMM) model, the analysis highlights the s...
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MDPI AG
2024-10-01
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| author | Nagwa Amin Abdelkawy |
| author_facet | Nagwa Amin Abdelkawy |
| author_sort | Nagwa Amin Abdelkawy |
| collection | DOAJ |
| description | This research explores the effects of significant global economic shocks, such as the 2008 Global Financial Crisis and the 2020 COVID-19 pandemic, on GDP growth in the Gulf Cooperation Council (GCC) nations. Employing a dynamic generalized method of moments (GMM) model, the analysis highlights the strong momentum effect of lagged GDP growth, where past performance plays a critical role in shaping current economic outcomes. The findings also reveal that natural resources continue to positively influence short-term growth, but with diminishing returns over time, supporting the resource curse hypothesis and underscoring the need for broader structural reforms to ensure long-term sustainability. In addition, the results show that external investments flowing into the country, trade balance, and inflation emerge as key drivers of economic growth. While moderate inflation is positively associated with economic expansion, unemployment exerts a significant negative effect on GDP growth, particularly in models that account for country-specific characteristics. This emphasizes the need for labor market reforms to improve employment rates and support sustainable development. The role of gross capital formation, particularly in both the dynamic GMM and random effects models, further underscores the importance of strategic domestic investment, especially during periods of global disruption. These findings emphasize the critical need for economic diversification in the GCC. Policymakers should focus on attracting foreign investment, managing inflation, enhancing human capital, and boosting domestic investment to mitigate the adverse effects of the resource curse and secure sustainability. While market capitalization and oil rents may stimulate short-term growth, their long-term sustainability remains uncertain without greater diversification. Both external and domestic investments emerge as critical drivers of long-term growth, while persistent challenges such as inflation and unemployment continue to pose risks to economic stability. The study highlights the need to reduce reliance on oil and leverage human capital to build more resilient economies capable of adapting to future challenges. By offering dynamic, empirical insights into the balance between resource reliance and sustainable growth, this research adds valuable insights to the policy discussion on economic diversification in the GCC. Policymakers are urged to prioritize FDI, inflation management, domestic capital formation, and human capital development to mitigate vulnerabilities and ensure sustainable economic growth in the face of ongoing global uncertainties. |
| format | Article |
| id | doaj-art-c0f8ec8d0efd4622abdfdc7bbdd31f0f |
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| issn | 2227-7099 |
| language | English |
| publishDate | 2024-10-01 |
| publisher | MDPI AG |
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| series | Economies |
| spelling | doaj-art-c0f8ec8d0efd4622abdfdc7bbdd31f0f2025-08-20T01:53:45ZengMDPI AGEconomies2227-70992024-10-01121128710.3390/economies12110287Diversification and the Resource Curse: An Econometric Analysis of GCC CountriesNagwa Amin Abdelkawy0Department of Economics, School of Business, King Faisal University, Al-Ahsa 31982, Saudi ArabiaThis research explores the effects of significant global economic shocks, such as the 2008 Global Financial Crisis and the 2020 COVID-19 pandemic, on GDP growth in the Gulf Cooperation Council (GCC) nations. Employing a dynamic generalized method of moments (GMM) model, the analysis highlights the strong momentum effect of lagged GDP growth, where past performance plays a critical role in shaping current economic outcomes. The findings also reveal that natural resources continue to positively influence short-term growth, but with diminishing returns over time, supporting the resource curse hypothesis and underscoring the need for broader structural reforms to ensure long-term sustainability. In addition, the results show that external investments flowing into the country, trade balance, and inflation emerge as key drivers of economic growth. While moderate inflation is positively associated with economic expansion, unemployment exerts a significant negative effect on GDP growth, particularly in models that account for country-specific characteristics. This emphasizes the need for labor market reforms to improve employment rates and support sustainable development. The role of gross capital formation, particularly in both the dynamic GMM and random effects models, further underscores the importance of strategic domestic investment, especially during periods of global disruption. These findings emphasize the critical need for economic diversification in the GCC. Policymakers should focus on attracting foreign investment, managing inflation, enhancing human capital, and boosting domestic investment to mitigate the adverse effects of the resource curse and secure sustainability. While market capitalization and oil rents may stimulate short-term growth, their long-term sustainability remains uncertain without greater diversification. Both external and domestic investments emerge as critical drivers of long-term growth, while persistent challenges such as inflation and unemployment continue to pose risks to economic stability. The study highlights the need to reduce reliance on oil and leverage human capital to build more resilient economies capable of adapting to future challenges. By offering dynamic, empirical insights into the balance between resource reliance and sustainable growth, this research adds valuable insights to the policy discussion on economic diversification in the GCC. Policymakers are urged to prioritize FDI, inflation management, domestic capital formation, and human capital development to mitigate vulnerabilities and ensure sustainable economic growth in the face of ongoing global uncertainties.https://www.mdpi.com/2227-7099/12/11/287economic resiliencediversificationresource dependencyGCC countriesfinancial marketsoil rents |
| spellingShingle | Nagwa Amin Abdelkawy Diversification and the Resource Curse: An Econometric Analysis of GCC Countries Economies economic resilience diversification resource dependency GCC countries financial markets oil rents |
| title | Diversification and the Resource Curse: An Econometric Analysis of GCC Countries |
| title_full | Diversification and the Resource Curse: An Econometric Analysis of GCC Countries |
| title_fullStr | Diversification and the Resource Curse: An Econometric Analysis of GCC Countries |
| title_full_unstemmed | Diversification and the Resource Curse: An Econometric Analysis of GCC Countries |
| title_short | Diversification and the Resource Curse: An Econometric Analysis of GCC Countries |
| title_sort | diversification and the resource curse an econometric analysis of gcc countries |
| topic | economic resilience diversification resource dependency GCC countries financial markets oil rents |
| url | https://www.mdpi.com/2227-7099/12/11/287 |
| work_keys_str_mv | AT nagwaaminabdelkawy diversificationandtheresourcecurseaneconometricanalysisofgcccountries |