ERF 26th Annual Conference

Economic Diversification and Governance Challenges in MENA Oil Exporters: A Comparative Study






June, 2020


O5. Economywide Country Studies

Q5. Environmental Economics

O4. Economic Growth and Aggregate Productivity

The present paper aims, on the one hand, to test the impact of oil rents on economic growth and examine the main symptoms of the resource curse phenomenon in oil-abundant MENA countries, and on the other hand, to investigate the role of governance in avoiding the resource curse and turning oil rents into a tool for economic diversification in 11 MENA oil exporters (Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, United Arab Emirates, and Yemen) over the period 1996-2018. This paper aims also to compare the diversification experience of Canada, Norway and Malaysia to that of GCC countries, by using pooled OLS, fixed effects, random effects and generalized method of moments (GMM) estimators. The main findings indicate that diversification, good governance and oil rents lay the foundation for sustainable growth in MENA oil exporters. Likewise, these economies have been diagnosed with resource curse. The results also reveal that governance is a key ingredient in the diversification recipe, while oil rents frustrate economic diversification by encouraging rent-seeking activities. The multiplicative interaction term between governance index and oil rents indicates that the combined effect of these two variables is effective in promoting diversification, in other words, the enhancement of MENA oil-exporters’ governance situation allows oil rents to serve as a crucial funding source for many other sectors and enhance economic diversification. Moreover, the rate of improvement in diversification brought by governance is higher in GCC countries than in CNM group (Canada, Norway and Malaysia) because more efforts are needed from GCC countries to catch up with CNM group's governance levels; closing the governance gap determines how quickly GCC countries can promote economic diversification.
Economic Diversification and Governance Challenges in MENA Oil Exporters: A Comparative Study

Research Associates

Siham Matallah

Associate Professor, Department of Economics, University of...