## Economic Diversification in the GCC: Past, Present, and Future

_Staff Discussion Notes, December 23, 2014_

## Source details

**Canonical URL:** [Economic Diversification in the GCC: Past, Present, and Future](https://www.imf.org/en/publications/staff-discussion-notes/issues/2016/12/31/economic-diversification-in-the-gcc-past-present-and-future-42531)

## Other formats

- [Markdown version](/en/publications/staff-discussion-notes/issues/2016/12/31/economic-diversification-in-the-gcc-past-present-and-future-42531/index.md)
- [Structured JSON version](/en/publications/staff-discussion-notes/issues/2016/12/31/economic-diversification-in-the-gcc-past-present-and-future-42531/index.json)
- [Bundle manifest](/en/publications/staff-discussion-notes/issues/2016/12/31/economic-diversification-in-the-gcc-past-present-and-future-42531/bundle-manifest.json)

## Bibliographic details
- Authors: Tim Callen, Reda Cherif, Fuad Hasanov, Amgad Hegazy, Padamja Khandelwal
- Published: December 23, 2014
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781498303231.006

---

### Abstract / Summary
- The economies of the six Gulf Cooperation Council (GCC) countries are heavily reliant on oil.
- Greater economic diversification would:
  - reduce exposure to volatility and uncertainty in the global oil market,
  - help create jobs in the private sector,
  - increase productivity and sustainable growth,
  - help create the non-oil economy needed when oil revenues start to dwindle.
- The GCC countries have implemented many standard policies to promote diversification, including:
  - reforms to improve the business climate,
  - development of domestic infrastructure,
  - financial deepening,
  - improvements in education.
- Despite these measures, success to date has been limited.
- The paper argues that the “missing link” in GCC diversification strategies is realigning incentives for firms and workers.

### Key Findings and Analysis
- Incentive imbalances currently favor non-tradable production because:
  - firms benefit from the easy availability of low-wage foreign labor,
  - firms benefit from rapid growth in government spending,
  - producing non-tradables is less risky and more profitable for firms.
- Labor market and public sector features discourage nationals from private-sector entrepreneurship and employment:
  - continued availability of high-paying and secure public sector jobs discourages nationals from pursuing entrepreneurship and private sector employment.
- Increased diversification requires fixing incentives for both firms and workers.

### Policy Recommendations and Measures
- Measures to begin addressing incentive issues could include:
  - limiting and reorienting government spending,
  - strengthening private sector competition,
  - providing guarantees and financial support for firms engaged in export activity,
  - implementing labor market reforms to make nationals more competitive for private sector employment.

### Publication and Metadata
- Staff Discussion Notes
- By Tim Callen, Reda Cherif, Fuad Hasanov, Amgad Hegazy, Padamja Khandelwal
- December 23, 2014
- Pages: 32
- Volume: 2014
- Issue: 012
- Series: Staff Discussion Notes No. 2014/012
- DOI: https://doi.org/10.5089/9781498303231.006
- Stock No: SDNEA201412
- ISBN: 9781498303231
- ISSN: 2617-6750

*Staff Discussion Note: "Economic Diversification in the GCC: Past, Present, and Future" (2014) — authors Tim Callen, Reda Cherif, Fuad Hasanov, Amgad Hegazy, Padamja Khandelwal.*

---

## Content in this bundle

- **Executive Summary**
  - [Executive Summary (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2014/_sdn1412.pdf.md){rel="alternate" type="text/markdown"}
  - [Executive Summary (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2014/_sdn1412.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/staff-discussion-notes/issues/2016/12/31/economic-diversification-in-the-gcc-past-present-and-future-42531_