Oil, Economic Diversification, and Development in the Arab World

This report aims at providing ERF with a sound basis for selecting and designing a research program over the next three to five years for one of the major themes of the initiative – oil management and economic diversification. An earlier version of this report was presented at the workshop on “Natural Resources and Economic Diversification: Towards a Research Agenda for ERF”, held in Cairo in November 2009. The draft was subsequently revised thanks to, among others, the valuable comments from the conference participants. The report undertakes a review of the literature on the oil curse and economic diversification- two issues of vital relevance to the development of the Arab world. Not surprisingly agreeing with the with the near-consensus view that the curse is real but is not destiny, the report proposes a number of priorities for a future policy-relevant research agenda on the above two broad themes. First, the macro-institutional issues for escaping the oil curse; and consequently the strategies for escaping it; or in other words, the plan for harnessing the oil resource for long-term development of the Arab world. Second, the micro-institutional issues of economic diversification, where the report addresses some pivotal questions, such as why and how to diversify, and for what development objectives?