Abdelkawy, Nagwa Amin
A icle
Di e si ica ion and he esou ce cu se: An econome ic
analysis o GCC coun ies
Economies
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Abdelkawy, Nagwa Amin (2024) : Di e si ica ion and he esou ce cu se: An
econome ic analysis o GCC coun ies, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 12, Iss. 11, pp.
1-29,
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Ci a ion: Abdelkawy, Nagwa Amin.
2024. Di e si ica ion and he Resou ce
Cu se: An Econome ic Analysis o
GCC Coun ies. Economies 12: 287.
h ps://doi.o g/10.3390/
economies12110287
Academic Edi o : Geo ge R. G. Cla ke
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economies
A icle
Di e si ica ion and he Resou ce Cu se: An Econome ic
Analysis o GCC Coun ies
Nagwa Amin Abdelkawy
Depa men o Economics, School o Business, King Faisal Uni e si y, Al-Ahsa 31982, Saudi A abia;
[email p o ec ed]
Abs ac : This esea ch explo es he e ec s o signi ican global economic shocks, such as he 2008
Global Financial C isis and he 2020 COVID-19 pandemic, on GDP g ow h in he Gul Coope a ion
Council (GCC) na ions. Employing a dynamic gene alized me hod o momen s (GMM) model, he
analysis highligh s he s ong momen um e ec o lagged GDP g ow h, whe e pas pe o mance
plays a c i ical ole in shaping cu en economic ou comes. The indings also e eal ha na u al
esou ces con inue o posi i ely in luence sho - e m g ow h, bu wi h diminishing e u ns o e
ime, suppo ing he esou ce cu se hypo hesis and unde sco ing he need o b oade s uc u al
e o ms o ensu e long- e m sus ainabili y. In addi ion, he esul s show ha ex e nal in es men s
lowing in o he coun y, ade balance, and in la ion eme ge as key d i e s o economic g ow h.
While mode a e in la ion is posi i ely associa ed wi h economic expansion, unemploymen exe s a
signi ican nega i e e ec on GDP g ow h, pa icula ly in models ha accoun o coun y-speci ic
cha ac e is ics. This emphasizes he need o labo ma ke e o ms o imp o e employmen a es
and suppo sus ainable de elopmen . The ole o g oss capi al o ma ion, pa icula ly in bo h he
dynamic GMM and andom e ec s models, u he unde sco es he impo ance o s a egic domes ic
in es men , especially du ing pe iods o global dis up ion. These indings emphasize he c i ical need
o economic di e si ica ion in he GCC. Policymake s should ocus on a ac ing o eign in es men ,
managing in la ion, enhancing human capi al, and boos ing domes ic in es men o mi iga e he
ad e se e ec s o he esou ce cu se and secu e sus ainabili y. While ma ke capi aliza ion and oil
en s may s imula e sho - e m g ow h, hei long- e m sus ainabili y emains unce ain wi hou
g ea e di e si ica ion. Bo h ex e nal and domes ic in es men s eme ge as c i ical d i e s o long-
e m g ow h, while pe sis en challenges such as in la ion and unemploymen con inue o pose
isks o economic s abili y. The s udy highligh s he need o educe eliance on oil and le e age
human capi al o build mo e esilien economies capable o adap ing o u u e challenges. By o e ing
dynamic, empi ical insigh s in o he balance be ween esou ce eliance and sus ainable g ow h, his
esea ch adds aluable insigh s o he policy discussion on economic di e si ica ion in he GCC.
Policymake s a e u ged o p io i ize FDI, in la ion managemen , domes ic capi al o ma ion, and
human capi al de elopmen o mi iga e ulne abili ies and ensu e sus ainable economic g ow h in
he ace o ongoing global unce ain ies.
Keywo ds: economic esilience; di e si ica ion; esou ce dependency; GCC coun ies; inancial
ma ke s; oil en s; dynamic panel da a; sus ainable g ow h
1. In oduc ion
The Gul Coope a ion Council (GCC) coun ies, endowed wi h as oil ese es, ha e
long elied on hese esou ces o uel economic g ow h and imp o e li ing s anda ds.
Howe e , his hea y dependence on oil e enues has made hese economies pa icula ly
ulne able o he ola ili y o global oil p ices, unde sco ing he c i ical need o di e -
si ica ion o ensu e sus ainable, long- e m g ow h. The GCC’s eliance on oil has been
cha ac e ized by wha is commonly e e ed o as he esou ce cu se—a phenomenon
whe e esou ce- ich coun ies o en expe ience slowe economic de elopmen , ins i u ional
Economies 2024,12, 287. h ps://doi.o g/10.3390/economies12110287 h ps://www.mdpi.com/jou nal/economies
Economies 2024,12, 287 2 o 29
weaknesses, and limi ed di e si ica ion due o he o e whelming ocus on na u al esou ce
ex ac ion. Despi e nume ous ini ia i es aimed a educing hei eliance on oil, he GCC
coun ies s ill ace signi ican challenges in achie ing a mo e di e si ied and esilien
economic s uc u e.
This s udy explo es he complex nexus be ween ma ke capi aliza ion, oil dependency,
and key socio-economic ac o s in he GCC coun ies om 2000 o 2022. Speci ically, i
aims o answe he ollowing esea ch ques ion: How do ma ke capi aliza ion, oil en s,
and socio-economic ac o s—including o eign di ec in es men (FDI) and g oss capi al
o ma ion (GCF)—in e ac o in luence GDP g ow h in hese oil-dependen economies?
The s udy is d i en by he ollowing hypo heses:
Hypo hesis 1. Ma ke capi aliza ion ini ially d i es economic g ow h bu exhibi s diminishing
e u ns o e ime i no suppo ed by b oade s uc u al e o ms.
Hypo hesis 2. Oil en s, while con ibu ing o sho - e m GDP g ow h, cons ain long- e m
economic expansion, illus a ing he e ec s o he esou ce cu se. The esou ce cu se heo y posi s
ha oil dependency leads o he unde de elopmen o o he sec o s, limi s inno a ion, and exace ba es
economic ola ili y.
Hypo hesis 3. Fo eign di ec in es men and g oss capi al o ma ion, along wi h socio-economic
ac o s such as human capi al de elopmen , in la ion, and unemploymen , play pi o al oles in
d i ing sus ainable, long- e m economic g ow h.
To igo ously es hese hypo heses, he s udy employs ad anced econome ic ech-
niques, pa icula ly he dynamic GMM model, which allows o a nuanced analysis o bo h
he immedia e and delayed e ec s o ma ke cap, oil en s, bo h ex e nal and domes ic
in es men s, and socio-economic ac o s on GDP g ow h. This dynamic app oach is pa ic-
ula ly sui ed o cap u ing he e ol ing na u e o economic g ow h in esou ce-dependen
economies like hose in he GCC. I also p o ides a amewo k o unde s anding how
he esou ce cu se mani es s in he GCC and a ec s he long- e m sus ainabili y o oil-
d i en g ow h.
The esul s o his s udy e eal ha while ma ke capi aliza ion and oil en s p o ide
sho - e m boos s o GDP g ow h, hei long- e m sus ainabili y is limi ed wi hou com-
p ehensi e e o ms ha add ess he s uc u al issues posed by oil dependency. Consis en
wi h he esou ce cu se heo y, he con inued eliance on oil en s hinde s b oade economic
de elopmen , as i s i les inno a ion, educes he compe i i eness o non-oil sec o s, and
inc eases economic ola ili y. Ex e nal and domes ic in es men s eme ge as key d i e s
o sus ainable g ow h, highligh ing he impo ance o ex e nal in es men s and domes ic
capi al o ma ion in educing dependency on oil e enues. Addi ionally, in la ion and
unemploymen a e shown o be signi ican challenges, emphasizing he need o e ec i e
policies o manage hese issues and os e a mo e esilien economy.
By analyzing he sho - and long- e m impac s o ma ke capi aliza ion, oil en s, and
o he socio-economic a iables, his esea ch o e s aluable insigh s in o s a egies ha
can help policymake s design mo e balanced and di e si ied economic sys ems in he GCC.
These insigh s align wi h he egion’s long- e m de elopmen isions, which seek o escape
he esou ce cu se by ansi ioning owa ds a mo e di e si ied, inno a ion-d i en economy.
2. Li e a u e Re iew
Economic di e si ica ion is essen ial o oil-dependen economies like hose in he
GCC o mi iga e he isks associa ed wi h oil p ice luc ua ions and achie e sus ainable
g ow h. The ‘ esou ce cu se’ heo y, ou lined by Sachs and Wa ne (2001), desc ibes how
o e - eliance on na u al esou ces can s i le b oade economic de elopmen . This happens
because dependence on one esou ce limi s inno a ion, economic di e si ica ion, and ins i-
u ional g ow h, c ea ing a cycle o ulne abili y o ma ke shi s. GCC coun ies, hea ily
elian on oil, a e pa icula ly exposed o his isk, making di e si ica ion an impe a i e
Economies 2024,12, 287 3 o 29
o hei long- e m economic heal h. Di e si ica ion s a egies a e key o educing mac oe-
conomic ola ili y and building esilience agains ex e nal shocks.
Van de Ploeg (2011)
a gues o ansi ioning om oil-dependen economic s uc u es o mo e a ied and di e -
si ied models, highligh ing ha his shi helps educe ulne abili y o global oil ma ke
luc ua ions. The Wo ld Bank (2022) suppo s his iew, emphasizing ha economies elian
on na u al esou ces need o expand in o non-oil sec o s like manu ac u ing and se ices
o s abilize and sus ain long- e m g ow h. These sec o s can p o ide mo e consis en
economic ou pu , shield coun ies om he ola ili y o esou ce ma ke s, and pa e he
way o b oade economic s abili y.
Human capi al de elopmen and business dynamism a e c i ical d i e s o success ul
di e si ica ion. A well-educa ed, skilled wo k o ce is c ucial o expanding in o non-oil
indus ies such as echnology, heal hca e, and enewable ene gy. Coun ies ha in es in
hei human capi al— h ough educa ion, aining, and heal hca e—a e be e posi ioned
o ansi ion owa d non- esou ce-based economies. Fo example, Oman has ocused on
enhancing educa ion and wo k o ce capabili ies o suppo i s economic di e si ica ion
e o s, while Indonesia’s human capi al in es men s ha e acili a ed g ow h in i s manu-
ac u ing and se ice sec o s. These case s udies demons a e ha s eng hening human
capi al is essen ial o educing dependency on a single esou ce and os e ing b oade
economic g ow h.
Inno a ion and en ep eneu ship u he accele a e di e si ica ion e o s. Albassam
(2015) poin s ou ha os e ing a cul u e o inno a ion is i al o GCC coun ies as hey
ansi ion om oil-based economies. Encou aging en ep eneu ship enables he de elop-
men o new indus ies and echnologies, which a e necessa y o c ea ing a di e se and
compe i i e economy. The GCC’s long- e m s a egic plans, such as Saudi A abia’s Vision
2030, ocus on educing oil dependence by p omo ing in es men in eme ging sec o s like
enewable ene gy, heal hca e, educa ion, and echnology. By suppo ing en ep eneu s and
small and medium-sized en e p ises (SMEs), hese plans aim o c ea e a mo e dynamic and
inno a i e economy capable o gene a ing sus ainable g ow h.
This shi is pa icula ly c i ical o GCC economies, which ace he challenge o
balancing cu en oil e enues wi h he need o in es in u u e indus ies. Vision 2030
and simila s a egies e lec he unde s anding ha sus ained economic g ow h equi es
mo e han jus oil expo s—i equi es a di e si ied economic base suppo ed by skilled
labo , inno a ion, and a obus business en i onmen . By c ea ing conduci e condi ions o
new indus ies o lou ish and educing eliance on oil, he GCC coun ies a e wo king o
ensu e a mo e esilien economic u u e.
2.1. Financial Ma ke s and Economic Expansion
The ela ionship be ween inancial ma ke de elopmen and economic g ow h is well-
documen ed, wi h ma ke capi aliza ion ac ing as a key indica o o a coun y’s inancial
ma u i y. Well-de eloped inancial ma ke s acili a e e icien capi al alloca ion, which in
u n d i es p oduc i i y and os e s long- e m economic expansion. Le ine and Ze os
(1998) a gue ha when inancial ma ke s unc ion e ec i ely, hey help guide in es men s
in o p oduc i e a eas, he eby p omo ing o e all economic g ow h. This makes inancial
ma ke de elopmen a c ucial aspec o economic s a egy o coun ies seeking sus ained
g ow h. Recen s udies u he con i m his ela ionship in eme ging ma ke s. Osase i and
Osamwonyi (2019) demons a e ha s ock ma ke de elopmen has a signi ican posi i e
impac on economic g ow h in BRICS coun ies, ein o cing he idea ha inancial ma u i y
plays a i al ole in acili a ing g ow h. These indings align wi h he economic goals o
GCC coun ies, whe e inancial ma ke de elopmen could simila ly suppo di e si ica ion
e o s by p o iding capi al o non-oil sec o s, p omo ing long- e m economic s abili y.
Howe e , he g ow h o inancial ma ke s mus be pai ed wi h s ong egula o y
amewo ks o ensu e s abili y and p e en po en ial isks. Naceu and Ghazouani (2007)
emphasize ha in egions such as he Middle Eas and No h A ica (MENA), he expansion
o inancial ma ke s does no always di ec ly con ibu e o economic g ow h, especially in
Economies 2024,12, 287 4 o 29
en i onmen s wi h weak egula o y o e sigh . Inadequa ely egula ed inancial sys ems
can lead o ma ke ins abili y, as shown by Kaminsky and Schmukle (2003), who high-
ligh ha inancial libe aliza ion, when combined wi h weak egula o y o e sigh , may
in oduce sho - e m ins abili y. Demi güç-Kun e al. (2013) simila ly wa n ha apid
inancial ma ke g ow h, i le unchecked in weak egula o y se ings, can lead o economic
ins abili y, demons a ing he impo ance o sound go e nance in main aining inancial
s abili y. In he con ex o he GCC, whe e economies a e wo king owa d di e si ica ion,
inancial ma ke de elopmen plays an especially c i ical ole. G assa and Gazda (2014)
p o ide empi ical e idence showing ha obus inancial sys ems a e i al in suppo -
ing economic di e si ica ion s a egies in esou ce-dependen economies like hose in he
GCC. Well- unc ioning inancial ma ke s supply he capi al and liquidi y necessa y o
de eloping non-oil sec o s, helping o educe he eliance on oil e enues. These ma ke s
also a ac o eign in es men , u he bols e ing economic g ow h and helping he GCC
coun ies ansi ion o mo e sus ainable, di e si ied economies.
Ensu ing ha inancial ma ke g ow h is suppo ed by s ong egula o y amewo ks is
essen ial o GCC coun ies aiming o use inancial de elopmen as a ool o di e si ica ion.
As he egion seeks o expand beyond oil, e ec i e inancial ma ke s will be ins umen al
in unding he g ow h o new sec o s and suppo ing long- e m economic s abili y.
2.2. The In luence o Oil Ren s on Economic G ow h
While oil en s ha e been a majo sou ce o e enue o GCC economies, hey p esen
signi ican challenges o economic di e si ica ion. The esou ce cu se heo y, as ou lined
by Sachs and Wa ne (2001), sugges s ha coun ies ich in oil o en expe ience slowe
economic g ow h due o he c owding ou o o he p oduc i e sec o s. This phenomenon
occu s as oil e enues domina e he economy, lea ing li le oom o he de elopmen o
non-oil sec o s like manu ac u ing o se ices. Fuinhas e al. (2015) ein o ce his a gumen ,
showing ha oil en s end o dep ess economic g ow h in bo h he sho and long e m,
ein o cing he no ion ha oil weal h, while luc a i e in he sho e m, o en hinde s
sus ainable g ow h. This highligh s he c i ical need o educe dependency on oil en s and
p omo e economic di e si ica ion o build mo e esilien economies.
E ec i e go e nance is a key ac o in mi iga ing he nega i e e ec s o oil dependency.
Ma allah and Ma allah (2016) emphasize ha go e nance e o ms a e essen ial o o e com-
ing he esou ce cu se, pa icula ly in oil- ich economies. S ong go e nance ensu es ha
oil weal h is used s a egically o p omo e long- e m economic di e si ica ion and educe
he isks associa ed wi h oil p ice luc ua ions. By imp o ing anspa ency, accoun abili y,
and egula o y amewo ks, go e nance e o ms can help guide oil-dependen coun ies
owa ds mo e balanced and sus ainable g ow h.
Fuinhas e al. (2015) expand on his by demons a ing ha while oil consump ion can
boos economic g ow h in he sho un, oil en s dep ess g ow h in he long un. This
aligns wi h he b oade esou ce cu se heo y, which explains how he o e - eliance on oil
e enues can c owd ou he de elopmen o o he indus ies, ul ima ely es ic ing b oade
economic de elopmen . The s udy unde lines he impo ance o mo ing away om oil
dependency and implemen ing di e si ica ion s a egies o coun e he long- e m nega i e
impac s o oil en s on economic pe o mance.
G assa and Gazda (2014) o e s a nuanced iew o he en ie s a e and esou ce
cu se na a i es, pa icula ly ega ding he GCC coun ies. He a gues ha while he
esou ce cu se amewo k p edic s de imen al e ec s o oil en s on economic g ow h,
he GCC coun ies ha e no expe ienced he ull ex en o hese nega i e consequences.
They con ends ha he GCC coun ies, unlike many o he oil-dependen na ions, ha e
managed o mi iga e some o he wo s e ec s o he esou ce cu se, po en ially due o
be e go e nance and mo e s a egic use o oil e enues. This sugges s ha while oil en s
ha e his o ically domina ed hei economies, he GCC’s expe ience wi h he esou ce cu se
has been compa a i ely less damaging.
Economies 2024,12, 287 5 o 29
Despi e hese ela i ely posi i e ou comes, he undamen al challenge emains ha
con inued eliance on oil en s es ic s long- e m economic g ow h po en ial. The GCC
coun ies mus p io i ize economic di e si ica ion o secu e sus ainable de elopmen . As
emphasized by Ma allah and Ma allah (2016), go e nance e o ms a e c ucial o ensu ing
ha oil e enues a e in es ed s a egically in sec o s ha p omo e di e si ica ion and
economic esilience, he eby educing he isk o u u e ola ili y and enabling sus ainable
g ow h ac oss he egion.
2.3. Socio-Economic Fac o s and Economic G ow h in he GCC
2.3.1. In la ion and Economic G ow h
In la ion can ad e sely impac economic g ow h by e oding pu chasing powe and
dis o ing p ice signals. Chimobi (2010) highligh s ha in la ion can des abilize long- e m
economic p ospec s, pa icula ly in oil-dependen economies like he GCC. Mode a e
in la ion; howe e , can suppo g ow h, as no ed by Khan and Ssnhadji (2001), who iden i y
in la ion h esholds (7–11%) ha a e conduci e o g ow h in de eloping economies.
Addi ionally, Ba o (1996) emphasizes ha in la ion can ha e a de imen al e ec
on economic g ow h, wi h an inc ease o 10 pe cen age poin s in in la ion leading o a
educ ion in eal pe capi a GDP g ow h by 0.2–0.3 pe cen age poin s annually. In la ion
also nega i ely impac s he in es men - o-GDP a io, educing i by 0.4–0.6 pe cen age
poin s. Al hough he sho - e m e ec s may seem modes , o e a 30-yea pe iod, sus ained
in la ion can lowe eal GDP by 4–7%, unde sco ing he impo ance o p ice s abili y o
long- e m economic p ospe i y.
In he con ex o he GCC, whe e economies a e ansi ioning owa ds di e si ica ion,
managing in la ion is c ucial. The e ec s o in la ion on in es men and g ow h, as de-
sc ibed by Ba o (1996) and Fische (1993), a e pa icula ly ele an as he GCC coun ies
wo k o a ac o eign and domes ic in es men in o non-oil sec o s. Con olling in la ion
can c ea e a mo e s able economic en i onmen ha encou ages long- e m in es men ,
os e s human capi al de elopmen , and suppo s inno a ion, all o which a e essen ial o
achie ing sus ainable g ow h.
2.3.2. Unemploymen and Economic G ow h
Unemploymen emains a signi ican challenge in he GCC, pa icula ly due o labo
ma ke igidi ies. High unemploymen signals unde u iliza ion o human capi al, which
hampe s economic e iciency. Fasano and Goyal (2004) emphasize he impo ance o labo
ma ke lexibili y and aligning educa ion wi h ma ke needs o add ess unemploymen
and suppo sus ainable g ow h.
Economic g ow h in he GCC is closely ied o employmen ends, wi h inc easing
a en ion being paid o how g ow h a ec s job c ea ion. Ben-Salha and Zmami (2021)
examine he employmen in ensi y o g ow h ac oss six GCC coun ies om 1970 o 2017.
Thei s udy e eals ha employmen elas ici ies ( he esponsi eness o employmen o
g ow h) ange be ween 0.4 and 0.6, showing an upwa d end o e ime. This indica es:
economic g ow h has had a mode a e bu g owing impac on employmen gene a ion
in he GCC; long- e m employmen in ensi y is posi i ely in luenced by ac o s, such as
ade libe aliza ion; he inc easing con ibu ion o he se ices sec o o GDP, g ow h in he
wo king-age popula ion, and u baniza ion. Howe e , mac oeconomic ola ili y exe s a
nega i e impac on employmen in ensi y o e ime. In he sho e m, ade libe aliza ion
and na u al esou ce en s show ad e se bu ela i ely weak e ec s on job c ea ion.
Blancha d and Wol e s (2000) discuss he signi ican ole ha ex e nal shocks and
ins i u ional amewo ks play in shaping economic ou comes, pa icula ly in he con ex
o unemploymen in Eu opean economies. Thei analysis highligh s how ad e se shocks,
such as oil p ice ola ili y, coupled wi h inadequa e ins i u ional esponses, can exace -
ba e unemploymen a es and hinde long- e m economic g ow h. This pe spec i e is
pa icula ly ele an o he GCC economies, which ace simila ulne abili ies due o hei
eliance on oil e enues. Jus as Blancha d and Wol e s a gue o he impo ance o obus
Economies 2024,12, 287 6 o 29
ins i u ions in mi iga ing hese e ec s, GCC coun ies mus s eng hen hei ins i u ional
amewo ks o manage he economic ins abili y b ough abou by ex e nal shocks, ensu ing
mo e sus ainable economic de elopmen
These indings highligh he impo ance o implemen ing policies ha no only p o-
mo e economic g ow h bu also ackle he unde lying s uc u al challenges a ec ing em-
ploymen gene a ion. This analysis highligh s he impo ance o economic di e si ica-
ion in he GCC, as sec o s such as se ices con ibu e mo e o job c ea ion compa ed o
oil-domina ed sec o s. Fo he GCC coun ies o educe hei eliance on oil en s and
os e inclusi e g ow h, i is essen ial o de elop policies ha encou age se ice sec o
expansion, enhance ade libe aliza ion, and manage u baniza ion e ec i ely. By doing
so, hey can gene a e mo e employmen oppo uni ies, which is c i ical o he egion’s
socio-economic s abili y.
2.3.3. Human De elopmen and Economic Resilience
Human de elopmen , as measu ed by he Human De elopmen Index (HDI), plays a
c i ical ole in in luencing economic g ow h, pa icula ly in esou ce-dependen economies
like hose in he GCC. G ubaugh (2015) demons a es ha economic g ow h, when iewed
h ough he lens o HDI a he han adi ional GDP pe capi a, p o ides a mo e com-
p ehensi e unde s anding o a na ion’s de elopmen . His indings sugges ha while
popula ion g ow h and ini ial GDP a e impo an d i e s, HDI cap u es b oade aspec s o
g ow h by inco po a ing li e expec ancy, educa ion, and li ing s anda ds. This app oach
indica es ha o sus ainable g ow h, GCC coun ies mus ocus no jus on GDP expansion,
bu also on imp o ing human de elopmen ou comes, which a e essen ial o long- e m
s abili y and p ospe i y.
Human capi al de elopmen is pa icula ly impo an in he GCC, as highligh ed by
Abdeldayem e al. (2021). Thei s udy e eals ha he low le els o in es men in esea ch
and de elopmen (R&D) and he limi ed p opo ion o wo ke s engaged in knowledge-
in ensi e sec o s a e majo obs acles o achie ing inno a ion-led g ow h. This c ea es a
ba ie o economic di e si ica ion, as he lack o ocus on human capi al de elopmen
inhibi s he GCC om achie ing a compe i i e edge in non-oil sec o s.
Public go e nance also plays a c i ical ole in de e mining he success o human
capi al de elopmen in d i ing economic g ow h. Al-Nase and Hamdan (2021) ind ha
go e nance indica o s—such as egula o y quali y and go e nmen
e ec i eness—a e
signi ican ly co ela ed wi h GDP g ow h. Thei s udy e eals ha imp o emen s in
go e nance and human de elopmen wo k in andem o os e s onge economic ou comes.
This highligh s he need o e ec i e go e nance s uc u es o maximize he bene i s o
human capi al in es men s in he GCC.
The collec i e indings om hese s udies emphasize ha human de elopmen , go e -
nance, and inno a ion a e pi o al o he long- e m economic success o he GCC coun ies.
While hese na ions ha e his o ically elied on oil en s, hei u u e economic s abili y
will depend on hei abili y o in es in human capi al, os e inno a ion, and s eng hen
go e nance amewo ks. As shown by G ubaugh (2015), a ocus on imp o ing HDI, in
conjunc ion wi h s ong go e nance, can p o ide he ounda ion o mo e sus ainable,
di e si ied g ow h in he GCC egion.
2.3.4. Poli ical S abili y and Economic G ow h
Poli ical s abili y is a key enable o economic g ow h, pa icula ly in he GCC egion.
S able poli ical en i onmen s c ea e condi ions conduci e o in es men and long- e m
economic planning. Abdalla and Abdelbaki (2014) no e ha poli ical s abili y in coun ies
like Bah ain and he UAE os e s he g ow h o he FDI and expo s. Howe e , poli ical
ins abili y, as highligh ed by Aisen and Veiga (2013), can educe p oduc i i y g ow h by
de e ing long- e m in es men . H id (2013) and Rajan and Zingales (2003) emphasize
ha poli ical and economic obs acles con inue o hinde he success ul implemen a ion o
di e si ica ion e o s in he GCC. Poli ical will is c ucial in o e coming ba ie s o inancial
Economies 2024,12, 287 7 o 29
e o ms and economic di e si ica ion in esou ce-dependen economies like hose in he
GCC. Ross (2018) also unde sco es he poli ical dynamics ela ed o esou ce dependence,
pa icula ly in oil- ich na ions, u he highligh ing he impo ance o go e nance e o ms
alongside economic e o ms.
2.3.5. G oss Capi al Fo ma ion (GCF) and Economic G ow h
G oss capi al o ma ion (GCF), ep esen ing in es men s in physical capi al such as
in as uc u e, machine y, and equipmen , is a c i ical d i e o economic g ow h. GCF
enhances a coun y’s p oduc i e capaci y, which, acco ding o Solow’s (1964) g ow h
model, di ec ly in luences long- e m economic pe o mance. This is pa icula ly ele an
in economies ansi ioning om esou ce dependence, such as hose in he GCC, whe e
capi al in es men s a e essen ial o di e si ica ion and educing eliance on oil e enues.
Empi ical e idence suppo s he posi i e ela ionship be ween GCF and economic
g ow h. Ba o (1991) ound a s ong co ela ion be ween GCF and GDP g ow h, especially
in coun ies seeking economic di e si ica ion. In he con ex o he GCC, in es men s
in physical capi al no only build in as uc u e bu also s imula e inno a ion and os e
esilience, allowing hese economies o adap o global shi s in ene gy ma ke s.
Topcu e al. (2020) u he emphasize he impo ance o GCF in shaping economic
g ow h ac oss a ious income le els. Thei s udy o 124 coun ies e eals ha capi al
accumula ion, combined wi h ene gy consump ion and na u al esou ces, signi ican ly
impac s na ional p oduc i i y. In high-income coun ies, GCF posi i ely in luences GDP,
bu in low-income coun ies, i s e ec is less p onounced, indica ing ha addi ional ac o s
such as ins i u ional s eng h, a e necessa y o maximize GCF’s po en ial. In examining he
ole o in es men , Gyl ason and Zoega (2001) a gue ha abundan na u al esou ces can
c owd ou physical capi al, hus inhibi ing economic g ow h.
In conclusion, GCF is a i al componen o economic de elopmen , pa icula ly o
coun ies like hose in he GCC, which a e wo king o di e si y hei economies. The
accumula ion o physical capi al d i es g ow h, bu i s e ec i eness depends on egional
and ins i u ional con ex s, unde sco ing he need o ailo ed policies ha align wi h speci ic
economic condi ions.
2.3.6. The Role o Fo eign Di ec In es men (FDI)
Fo eign di ec in es men (FDI) is widely ecognized as a key d i e o economic
g ow h, pa icula ly in de eloping and esou ce-dependen economies. Resea ch by
Bo ensz ein e al.
(1998) unde sco es he posi i e impac o FDI on GDP g ow h, pa icu-
la ly h ough echnology ans e , manage ial expe ise, and inc eased p oduc i i y. In
he Gul Coope a ion Council (GCC) economies, FDI plays a c i ical ole in di e si ica ion
e o s by p o iding ex e nal capi al o de eloping non-oil sec o s such as inance, ou ism,
and in as uc u e (Al a o e al. 2004). Howe e , he success o FDI in boos ing g ow h is
con ingen upon he abso p i e capaci y o he hos coun y— he abili y o e ec i ely u i-
lize FDI h ough ac o s like human capi al and ins i u ional quali y (Ca ko ic and Le ine
2005). The e ec i eness o FDI is o en in luenced by domes ic condi ions. Fo ins ance,
Bloms öm e al. (2003) emphasize ha obus ins i u ions and a a o able business en i on-
men a e necessa y o maximize FDI’s bene i s. The p esence o well-de eloped inancial
ma ke s, e icien egula o y amewo ks, and skilled labo a e c ucial in ampli ying FDI’s
posi i e e ec s on economic g ow h.
In he GCC con ex , Al-I iani (2007) explo es he ela ionship be ween FDI and eco-
nomic g ow h using he e ogeneous panel analysis. His indings e eal a bi-di ec ional
causali y be ween FDI and GDP, indica ing ha FDI p omo es economic g ow h, and g ow-
ing economies, in u n, a ac mo e FDI. This is pa icula ly ele an in he GCC, whe e
coun ies ha e ac i ely opened hei economies o o eign in es men as pa o b oade
e o s o di e si y away om oil dependence. Al-I iani emphasizes he ole o FDI in
echnological di usion and s esses he need o con inued imp o emen s in in as uc u e,
human capi al, and inancial ma ke de elopmen o a ac and maximize FDI.
Economies 2024,12, 287 8 o 29
The s udies collec i ely demons a e ha FDI can ha e a signi ican posi i e impac
on economic g ow h, bu he magni ude o his impac is la gely dependen on domes ic
condi ions. Fo coun ies like hose in he GCC, whe e FDI in lows ha e g own subs an ially
in ecen yea s, he e is a clea need o policies ha enhance abso p i e capaci ies, such as
in es ing in educa ion, in as uc u e, and ins i u ional e o ms. While FDI plays a c ucial
ole in p omo ing economic g ow h and di e si ica ion, he e ec i eness o his ela ionship
is shaped by bo h in e nal and ex e nal ac o s.
3. Me hodology
This s udy uses a comp ehensi e econome ic app oach o examine he ela ionship
be ween ma ke capi aliza ion, oil en s, and o he mac oeconomic a iables on GDP
g ow h in he GCC coun ies om 2000 o 2022. Bo h s a ic and dynamic panel da a models
a e applied o accoun o sho - e m luc ua ions and long- e m equilib ium dynamics in
hese esou ce-dependen economies.
3.1. Da a Sou ces
The da a o his s udy a e sou ced om au ho i a i e ins i u ions, including he Wo ld
Bank, he In e na ional Mone a y Fund (IMF), and a ious na ional s a is ical agencies.
These sou ces a e widely ecognized o hei eliabili y and igo in compiling mac oeco-
nomic indica o s, which ensu es he c edibili y o he a iables used in ou analysis. The
key a iables, such as GDP g ow h, oil en s, o eign di ec in es men (FDI), and in la ion,
a e de i ed om hese ins i u ions, p o iding a consis en and accu a e da ase ha e lec s
bo h na ional and in e na ional economic ends.
The Wo ld Bank and IMF da abases o e da a spanning se e al decades, allowing
o comp ehensi e longi udinal analysis ha is essen ial o s udying ends and luc ua-
ions in he GCC economies. These o ganiza ions ollow s anda dized p ocedu es in da a
collec ion, including c oss- e e encing na ional s a is ics and applying in e na ional guide-
lines o ha monize da a om a ious sou ces. This ensu es ha he da a a e compa able
ac oss coun ies and, o e ime, a c i ical ac o when analyzing panel da a om di e en
GCC na ions.
To u he assess he quali y o he da a, we acknowledge he impo ance o imeliness
and accu acy—pa icula ly conside ing global e en s such as he 2008 inancial c isis and
he COVID-19 pandemic. Bo h he Wo ld Bank and IMF upda e hei da a egula ly o
cap u e eal- ime changes in economic pe o mance, ensu ing ha any sudden shocks o
shi s a e e lec ed as soon as possible. Du ing hese c ises, hese ins i u ions we e able
o swi ly elease eme gency epo s and upda e o ecas s o p o ide policymake s and
esea che s wi h up- o-da e in o ma ion.
Al hough some ime lags in da a epo ing a e ine i able, pa icula ly o mo e de ailed
na ional da a, bo h o ganiza ions p io i ize upda ing key economic indica o s such as GDP
g ow h, in la ion, and oil en s o e lec he mos cu en s a e o he global economy. Thei
da a collec ion me hodologies ollow s ic e i ica ion p o ocols, ensu ing high accu acy.
These s anda ds a e i al, especially du ing pe iods o unce ain y, when accu a e da a a e
c i ical o making in o med policy decisions.
Fu he mo e, he igo ous c oss- alida ion p ocess employed by he Wo ld Bank and
IMF, which in ol es compa ing na ional da a sou ces and in e na ional guidelines, mini-
mizes inconsis encies and enhances he o e all eliabili y o he da ase . This me iculous
app oach ensu es ha he da a a e no only imely bu also obus , p o iding a solid
ounda ion o ou econome ic analysis.
3.2. Empi ical S a egy and Model Jus i ica ion
The empi ical s a egy begins by applying ixed e ec s (FE) and andom e ec s (RE)
models o assess he c oss-sec ional and empo al dynamics o he GCC economies. The
Hausman es (Hausman 1978) was employed o de e mine he p e e ed model, wi h he
Economies 2024,12, 287 15 o 29
The diminishing impac o Oil Ren (OR) ac oss models sugges s a g owing need o
educe dependency on na u al esou ces, suppo ing he iew ha eliance on na u al
esou ces alone is no a sus ainable g ow h s a egy. While OR is s a is ically signi ican in
Model 1, i s signi icance diminishes as mo e a iables a e in oduced in Models 2 and 3,
aligning wi h he b oade li e a u e on he esou ce cu se (e.g., Sachs and Wa ne 2001).
The expanded eg ession models e eal ha while na u al esou ces emain c ucial o
sho - e m g ow h, he inclusion o addi ional a iables highligh s o he signi ican d i e s.
TB and GCF eme ge as key ac o s suppo ing economic pe o mance, emphasizing he
impo ance o ex e nal ade and domes ic capi al in es men . The posi i e impac o FDI
ein o ces he ole o ex e nal capi al in lows, and he signi ican ela ionship be ween CPI
and GDP g ow h demons a es he c i ical need o e ec i e in la ion managemen .
O e all, hese esul s sugges ha he GCC economies canno ely solely on na u al
esou ces o long- e m sus ainable g ow h. A mo e comp ehensi e app oach, le e aging
ade, in es men , and in la ion con ol, is necessa y o achie e long- e m economic s a-
bili y and esilience. Al hough Ma ke Capi aliza ion emains posi i ely co ela ed bu
insigni ican , his migh indica e ha he size o inancial ma ke s has a mo e indi ec o
long- e m in luence on economic g ow h.
4.6. Coin eg a ion and Long-Run Rela ionships
Table 6p esen s he esul s o he Kao Panel Coin eg a ion Tes , con i ming he exis-
ence o long- un equilib ium ela ionships be ween key economic a iables in he GCC
coun ies. These a iables include GDP g ow h, Mcap, OR HDI, TB, GCF, FDI, CPI, UN,
and PS. Wi h p- alues below 0.05 ac oss se e al e sions o he Dickey–Fulle es s, he
esul s sugges ha despi e sho - e m luc ua ions, hese a iables mo e oge he o e
ime, indica ing s able and pe sis en economic ela ionships.
Table 6. Panel coin eg a ion analysis: Kao Tes esul s.
Coin eg a ion Tes Tes S a is ic p-Value
Modi ied Dickey–Fulle Tes −1.9253 0.0271
Dickey–Fulle Tes −2.6352 0.0042
Augmen ed Dickey–Fulle Tes −2.4585 0.0070
Unadjus ed Modi ied Dickey–Fulle −2.1247 0.0168
Unadjus ed Dickey–Fulle Tes −2.7095 0.0034
No e: p- alues below 0.05 indica e ejec ion o he null hypo hesis, sugges ing he p esence o long- e m equilib-
ium ela ionships among he a iables.
This coin eg a ion highligh s he impo ance o conside ing he long- e m in e play
be ween hese a iables. E en hough sho - e m shi s migh occu , he long- un equilib-
ium sugges s ha hese economic indica o s a e ied oge he by unde lying o ces ha
suppo s able g ow h in he egion.
The Kao Panel Coin eg a ion Tes esul s complemen he sho - e m indings om
Table 5. In Table 5, a iables such as TB, GCF, FDI, and CPI played signi ican oles in
sho - e m GDP g ow h. The coin eg a ion es con i ms ha hese a iables con inue o
ha e long- e m ele ance. The impo ance o TB and GCF o bo h sho - e m and long-
e m g ow h emphasizes he ole o ex e nal ade and domes ic in es men in sus aining
economic pe o mance in he GCC.
FDI and CPI also emain i al in he long un, ein o cing hei oles in suppo ing
sus ained economic g ow h. FDI highligh s he impo ance o ex e nal capi al in lows,
while CPI e lec s he need o ca e ul in la ion managemen . The pe sis ence o hese
ela ionships o e ime sugges s ha ocusing on imp o ing ade, in es men , and in la ion
con ol will be essen ial o he GCC’s long- e m economic s abili y.
Economies 2024,12, 287 16 o 29
Role o Oil Ren and he Resou ce Cu se
Oil Ren , while signi ican in he sho e m, shows a diminishing impac as mo e a i-
ables a e in oduced in he long- un analysis. This signals he need o he GCC economies
o g adually educe hei eliance on oil as a d i e o g ow h. The long- un equilib ium
shows ha o he ac o s, such as FDI, CPI, and GCF, play inc easingly impo an oles,
unde sco ing he necessi y o di e si ying he economy beyond na u al esou ces.
Va iables like UN and PS, which we e insigni ican in he sho - e m analysis in Table 5,
also appea in he long- e m coin eg a ion ela ionships. This sugges s ha , while hey may
no ha e immedia e e ec s on GDP g ow h, hese ac o s con ibu e o he long- e m heal h
and s abili y o he economy. Pe sis en unemploymen , o example, could unde mine
g ow h in he long un, and poli ical s abili y is essen ial o sus aining in es o con idence
and economic consis ency o e ime.
The long- un equilib ium ela ionships among hese a iables ein o ce he b oade
need o di e si ied economic policies. Focusing on sho - e m gains h ough oil e enue
alone will no ensu e sus ainable g ow h. Ins ead, in es ing in inancial ma ke s, human
capi al, ade, and in la ion con ol can help build a mo e esilien economic s uc u e.
Al hough HDI was s a is ically insigni ican in he sho - e m models, i s inclusion in
he long- e m analysis sugges s ha human capi al in es men s, such as imp o emen s in
educa ion and heal hca e, a e c ucial o long- e m g ow h. This suppo s he a gumen
ha ocusing on human de elopmen , e en i i does no yield immedia e esul s, will be
c i ical o sus ainable g ow h in he u u e.
Fu u e esea ch may u he in es iga e he delayed e ec s o human capi al in es -
men s, pa icula ly h ough longi udinal s udies ha ack he ou comes o e o ms like
Vision 2030. This would p o ide a mo e comp ehensi e unde s anding o he imeline o
human capi al de elopmen o in luence GDP g ow h in oil-dependen economies.
In conclusion, he Kao Panel Coin eg a ion Tes esul s con i m ha key a iables a e
ied by long- un equilib ium ela ionships in he GCC economies. While OR con inues
o p o ide sho - e m g ow h, he long- e m sus ainabili y o he egion depends on di-
e si ying beyond oil and in es ing in inancial de elopmen , ade, in la ion con ol, and
human capi al. Policymake s should p io i ize hese a eas o ensu e long- e m esilience
and g ow h, posi ioning he GCC economies o be e manage ex e nal shocks and achie e
sus ained p ospe i y.
4.7. E en S udy and Dummy Va iables
Table 7p esen s he esul s o an e en s udy eg ession, which includes dummy
a iables o cap u e he impac o signi ican global economic dis up ions, such as he 2008
Financial C isis and he 2020 COVID-19 pandemic, on GDP g ow h in he GCC coun ies.
The indings demons a e ha hese c ises had s a is ically signi ican nega i e e ec s on
GDP g ow h, wi h he e en dummy in Model 3 showing a highly signi ican coe icien o
−
3.683 * (p< 0.01). This highligh s he p o ound economic challenges ha a ise when oil-
dependen economies a e exposed o ex e nal global shocks. The esul s align wi h b oade
indings in he li e a u e ega ding he ulne abili y o esou ce-dependen economies o
ex e nal shocks. This suppo s he indings in Table 7, whe e he 2008 Financial C isis and
he 2020 COVID-19 pandemic had subs an ial nega i e e ec s on GDP g ow h in he GCC,
demons a ing he egion’s heigh ened exposu e o ex e nal dis up ions.
The esul s in Table 7also e lec he ulne abili ies o oil-dependen economies like
he GCC o such shocks, as e idenced by he diminishing signi icance o OR ac oss he
models. Model 1 shows a posi i e bu weakly signi ican ela ionship be ween OR and
GDP g ow h (0.0675 *, p< 0.1), bu his e ec becomes insigni ican in Models 2 and 3 as
o he economic ac o s, such as FDI and CPI, a e in oduced. This decline in signi icance
aligns wi h he concep o he esou ce cu se, whe e economies hea ily elian on na u al
esou ces o en s uggle o sus ain long- e m economic g ow h due o hei ulne abili y o
ex e nal shocks and p ice luc ua ions.
Economies 2024,12, 287 17 o 29
Table 7. E en s udy eg ession esul s.
Va iable Model 1 (Basic) Model 2 (Ex ended) Model 3 (Comple e)
Mcap 0.0112 0.0105 0.0157 **
(0.00881) (0.00841) (0.00773)
OR 0.0675 * −0.000889 0.0558
(0.0354) (0.0384) (0.0428)
HDI −0.651 −4.958 −4.392
(7.413) (7.168) (6.462)
TB 0.150 *** 0.0867 **
(0.0401) (0.0436)
GCF 0.120 ** 0.0889
(0.0596) (0.0678)
FDI 0.485 ***
(0.144)
CPI 0.478 ***
(0.132)
UN −0.236
(0.251)
PS 0.0246
(0.0195)
E en Dummy −1.630 −1.292 −3.683 ***
(1.170) (1.120) (1.046)
Cons an 2.307 4.606 −2.427
(6.347) (6.089) (6.052)
Obse a ions 138 138 138
R-squa ed 0.053 0.144 0.381
No e: S anda d e o s in pa en heses. ***, **, and * indica e s a is ical signi icance a he 1%, 5%, and 10% le els,
espec i ely.
The esou ce cu se is pa icula ly ele an o he GCC economies, whe e oil has
adi ionally been he p ima y d i e o economic g ow h. As shown in Table 7, he impac
o OR diminishes as mo e a iables a e included in he analysis, signaling ha oil e enues
alone a e no su icien o p o ec hese economies om ex e nal shocks like he 2008
Financial C isis and he 2020 COVID-19 pandemic. The GCC economies, despi e hei
abundan oil esou ces, ace g ea e exposu e o global dis up ions because o hei hea y
eliance on oil, which subjec s hem o luc ua ions in global oil p ices and demand. The
nega i e e ec s obse ed in Table 7suppo he esou ce cu se hypo hesis, ein o cing
he need o di e si ica ion s a egies o mi iga e he isks associa ed wi h dependence
on na u al esou ces. This is e lec ed in Table 7, whe e he nega i e e ec s o global
dis up ions highligh he need o economic di e si ica ion o mi iga e he isks associa ed
wi h dependence on oil.
As eliance on oil e enues diminishes, o he a iables ake on mo e impo ance in
explaining GDP g ow h. FDI becomes highly signi ican in Model 3 (0.485 *, p< 0.01),
highligh ing he c i ical ole o ex e nal capi al in lows in suppo ing g ow h, pa icula ly
du ing pe iods o global dis up ion. CPI also plays a signi ican ole (0.478 *, p< 0.01),
e lec ing he impo ance o in la ion managemen in main aining economic s abili y amid
ex e nal shocks.
Addi ionally, TB emains an impo an ac o , wi h a signi ican posi i e e ec on
GDP g ow h (0.0867, p< 0.05), demons a ing ha ade pe o mance is key o sus aining
economic g ow h, e en du ing pe iods o global u moil. Mcap becomes s a is ically
signi ican in Model 3 (0.0157, p< 0.05), indica ing he g owing ele ance o inancial
ma ke de elopmen as pa o a di e si ied economic amewo k.
The concep o he esou ce cu se is u he ein o ced by he esul s in Table 7, which
show ha he signi icance o OR diminishes as o he non-oil a iables become mo e
impo an in d i ing GDP g ow h. This shi e lec s he ulne abili y o oil-dependen
economies, which s uggle o main ain s abili y when ex e nal shocks a ec global oil
demand and p ices. The nega i e impac o global dis up ions on GDP g ow h unde sco es
Economies 2024,12, 287 18 o 29
he need o economic di e si ica ion in he GCC o educe eliance on oil e enues and
build a mo e esilien economic ounda ion.
By a ac ing o eign in es men , imp o ing ade pe o mance, and main aining
in la ion con ol, he GCC can de elop a mo e obus and esilien economic s uc u e,
less suscep ible o ex e nal shocks and luc ua ions in oil p ices. The signi ican posi i e
coe icien s o FDI, CPI, and TB in Model 3 highligh he impo ance o economic di e si-
ica ion and he de elopmen o o he sec o s o sus ain g ow h and educe exposu e o
he esou ce cu se. These indings align wi h hose o Al-Mulali and Sab (2013), who em-
phasize he impo ance o o eign capi al in lows and in la ion managemen in s abilizing
esou ce-dependen economies.
4.8. Ad anced Econome ic Analysis: Fixed and Random E ec s Models
Table 8compa es he esul s om he ixed e ec s (FE) and andom e ec s (RE)
models, used o analyze he ela ionship be ween key economic a iables and GDP g ow h
in he GCC coun ies. The Hausman es , as e e enced in Table 9, indica es a p e e ence
o he ixed e ec s model, sugges ing ha unobse ed coun y-speci ic ac o s, such as
go e nance, ins i u ional s uc u es, o unique economic policies, could bias he es ima es
in he andom e ec s model. This makes he ixed e ec s model mo e app op ia e, as i
con ols o hese ac o s, p o iding mo e eliable and consis en es ima es.
Table 8. Fixed and andom e ec s eg ession esul s.
Va iable Fixed E ec s (FE) Random E ec s (RE)
Mcap 0.0165 * 0.0109
(0.00926) (0.00794)
OR 0.195 *** 0.0607
(0.0743) (0.0446)
HDI 1.526 −5.752
(6.939) (6.731)
TB 0.0182 0.0972 **
(0.0530) (0.0454)
GCF 0.0470 0.105 *
(0.0946) (0.0620)
FDI 0.360 ** 0.435 ***
(0.169) (0.150)
CPI 0.321 ** 0.344 ***
(0.136) (0.132)
UN −1.756 *** −0.306
(0.661) (0.261)
PS 0.0798 * 0.0220
(0.0433) (0.0203)
Cons an −7.125 −0.757
(7.952) (6.296)
Obse a ions 138 138
R-squa ed 0.339
Numbe o Coun ies 6 6
No e: S anda d e o s in pa en heses. ***, **, and * indica e s a is ical signi icance a he 1%, 5%, and 10% le els,
espec i ely.
Table 9. Hausman (1978) speci ica ion es .
S a is ic Value
Chi-Squa e Tes Value 19.47
p- alue 0.0215
The esul s om he ixed e ec s model highligh he signi icance o OR in d i ing
GDP g ow h in he GCC. Wi h a posi i e and s a is ically signi ican coe icien (0.195 *,
p< 0.01)
, oil e enues emain cen al o economic pe o mance, despi e ongoing e o s
Economies 2024,12, 287 19 o 29
owa d di e si ica ion. In con as , OR in he andom e ec s model shows a weake
ela ionship (0.0607) and loses s a is ical signi icance. This sugges s ha oil’s con ibu ion
o g ow h is mo e con ex -dependen , in luenced by speci ic coun y cha ac e is ics.
Ano he key a iable, FDI, eme ges as a c ucial d i e o g ow h, pa icula ly in he
ixed e ec s model (0.360, p< 0.05). This inding unde sco es he impo ance o a ac ing
o eign in es men , which can uel long- e m g ow h and con ibu e o he di e si ica ion
o he economy. Simila ly, GCF, hough no s a is ically signi ican in he ixed e ec s model
(0.0470), sugges s ha domes ic in es men emains impo an o economic expansion.
In la ion dynamics, as measu ed by he CPI, show a posi i e and signi ican impac on
GDP g ow h in bo h models, wi h he ixed e ec s model coe icien a 0.321 (p< 0.05). This
indica es ha in la iona y p essu es, possibly e lec ing inc eased demand du ing economic
g ow h phases, a e posi i ely co ela ed wi h GDP g ow h in he egion. Managing in la ion
e ec i ely emains a key conside a ion o policymake s, especially in economies ha a e
ansi ioning om oil dependency o mo e di e si ied sou ces o income.
UN has a signi ican ly nega i e impac on GDP g ow h in he ixed e ec s model
(
−
1.756 *, p< 0.01), indica ing ha high unemploymen a es p esen a majo obs acle
o economic de elopmen . This sugges s ha add essing labo ma ke ine iciencies and
c ea ing job oppo uni ies should be cen al o policy e o s aimed a os e ing long- e m
g ow h. The lack o signi icance o UN in he andom e ec s model u he suppo s he
use o ixed e ec s o mo e accu a e insigh s in o he ole o unemploymen .
PS has a mode a e posi i e e ec on GDP g ow h in he ixed e ec s model (0.0798,
p< 0.1)
, ein o cing he no ion ha s able poli ical en i onmen s con ibu e o be e eco-
nomic ou comes. While he ela ionship is weake compa ed o o he a iables, i emains
an impo an ac o , pa icula ly when conside ing he long- e m a ac i eness o he GCC
o o eign in es o s.
These indings align wi h he concep o he esou ce cu se, which posi s ha economies
hea ily elian on na u al esou ces like oil o en ace g ow h challenges due o ola ili y in
global p ices and demand. The diminishing ole o OR as mo e a iables a e in oduced
in he analysis, combined wi h he inc easing signi icance o FDI, CPI, and TB, suppo s
he a gumen o economic di e si ica ion. GCC economies mus con inue o educe hei
dependence on oil e enues and ocus on de eloping o he sec o s o ensu e long- e m
economic esilience.
By emphasizing o eign in es men , ade, in la ion con ol, and labo ma ke e o ms,
GCC policymake s can mi iga e he isks associa ed wi h he esou ce cu se. The insigh s
gained om he ixed e ec s model demons a e he impo ance o add essing s uc u al
issues, such as unemploymen and poli ical s abili y, o c ea e a mo e sus ainable and
di e si ied economic ounda ion. These s a egies a e essen ial o achie ing sus ained
g ow h and educing he ulne abili y o he GCC economies o ex e nal shocks and
luc ua ions in oil p ices.
4.9. Diagnos ic Tes s and Robus ness o Econome ic Resul s
To ensu e he obus ness and eliabili y o he econome ic esul s, se e al diagnos ic
es s we e conduc ed o de ec po en ial issues in he model speci ica ions. The esul s o
hese es s, as ou lined in Tables 10–13, con i m ha he necessa y co ec ions we e applied,
add essing conce ns ela ed o he e oskedas ici y, mul icollinea i y, and au oco ela ion,
ensu ing he alidi y o he indings.
Table 10. B eusch-Pagan/Cook-Weisbe g es o he e oskedas ici y.
Tes S a is ic p-Value
B eusch-Pagan/Cook-Weisbe g Tes 11.45 0.0007
Economies 2024,12, 287 20 o 29
Table 11. Va iance in la ion ac o (VIF) analysis.
Va iable VIF
Mcap 2.31
OR 1.89
HDI 3.14
TB 1.73
GCF 1.62
FDI 2.02
CPI 1.95
UN 2.45
PS 1.87
Table 12. Woold idge es o au oco ela ion.
S a is ic Value
F-S a is ic 4.19
p- alue 0.0458
Table 13. Modi ied Wald es o g oupwise he e oskedas ici y.
S a is ic Value
Chi-Squa e Tes Value 25.36
p- alue 0.0000
The i s es conduc ed was he B eusch-Pagan/Cook-Weisbe g es o he e oskedas-
ici y (Table 10). The es e ealed he p esence o he e oskedas ici y, as indica ed by a
s a is ically signi ican p- alue o 0.0007. This esul sugges s ha he a iance o he
esiduals was no cons an ac oss obse a ions, which could lead o un eliable coe icien
es ima es i le unadd essed. To mi iga e his issue, obus s anda d e o s we e applied
o he model. This adjus men co ec ed o he e oskedas ici y, ensu ing ha he s anda d
e o s a e eliable, and allowing o mo e accu a e in e ences ega ding he signi icance o
he model’s coe icien s.
To assess he p esence o mul icollinea i y among he explana o y a iables, a Va iance
In la ion Fac o (VIF) analysis was pe o med (Table 11). The esul s show ha all VIF
alues we e well below he con en ional h eshold o 5, wi h he highes being 3.14 o
HDI, indica ing ha mul icollinea i y was no a signi ican conce n. This con i ms ha
he es ima ed coe icien s a e no in la ed o dis o ed by high co ela ions be ween he
independen a iables, ensu ing he eliabili y o he eg ession esul s.
Nex , he Woold idge es o au oco ela ion was applied o check o i s -o de
au oco ela ion in he panel da a (Table 12). The es p oduced a s a is ically signi ican
esul , wi h an F-s a is ic o 4.19 and a p- alue o 0.0458, indica ing he p esence o au-
oco ela ion. Au oco ela ion can lead o biased s anda d e o s, which could esul in
inco ec in e ences. To add ess his, he A ellano–Bond gene alized me hod o momen s
(GMM) app oach was implemen ed. This me hod co ec s o bo h au oco ela ion and
endogenei y, ensu ing ha he coe icien es ima es emain consis en and ha he s anda d
e o s a e obus .
Finally, he Modi ied Wald es o g oupwise he e oskedas ici y (Table 13) was con-
duc ed, yielding a chi-squa e alue o 25.36 and a p- alue o 0.0000, con i ming he p esence
o signi ican g oupwise he e oskedas ici y. This o m o he e oskedas ici y sugges s ha
he a iance o he esiduals a ies ac oss di e en g oups (e.g., coun ies in he panel
da a). Simila o he B eusch-Pagan es esul s, obus s anda d e o s we e applied o
co ec o his he e oskedas ici y, ensu ing ha he model p o ides eliable and unbiased
coe icien es ima es.
The combined esul s om hese diagnos ic es s ein o ce he alidi y o he model
speci ica ions. By applying obus s anda d e o s o add ess he e oskedas ici y and using
Economies 2024,12, 287 21 o 29
he A ellano–Bond GMM app oach o co ec o au oco ela ion and endogenei y, he
econome ic analysis ensu es ha he indings a e s a is ically sound. The absence o
mul icollinea i y u he s eng hens he con idence in he coe icien es ima es, con i ming
ha he ela ionships be ween he key economic a iables and GDP g ow h a e eliable.
These obus ness checks demons a e ha he po en ial biases ela ed o he e oskedas-
ici y, mul icollinea i y, and au oco ela ion ha e been p ope ly add essed. As a esul ,
he conclusions d awn om he econome ic models a e alid and p o ide a eliable basis
o policy in e p e a ion. The adjus men s made o co ec hese issues ensu e ha he
indings a e obus , making he analysis sui able o guiding economic policy decisions in
he GCC coun ies.
4.10. Dynamic GMM Resul s
Table 14 p esen s he esul s o he dynamic GMM model, which examines he long-
e m dynamics o GDP g ow h in he GCC coun ies. The dynamic GMM app oach is
pa icula ly well-sui ed o add essing issues o endogenei y and au oco ela ion in panel
da a, allowing o mo e obus insigh s in o he key ac o s in luencing economic g ow h.
Table 14. Dynamic gene alized me hod o momen s (GMM) eg ession esul s.
Va iable GMM Es ima es
Lagged GDP G ow h 0.321 ***
(0.0945)
Mcap 0.0126 *
(0.00758)
OR 0.145 **
(0.0612)
HDI −2.578
(5.963)
TB 0.0589 **
(0.0285)
GCF 0.0893 *
(0.0532)
FDI 0.297 **
(0.143)
CPI 0.262 **
(0.127)
UN −1.254 ***
(0.432)
PS 0.0347 **
(0.0170)
Cons an 0.576
(5.738)
Obse a ions 138
Numbe o Ins umen s 15
A ellano–Bond Tes (AR1 p- alue) 0.0352
A ellano–Bond Tes (AR2 p- alue) 0.1897
Hansen Tes (p- alue) 0.2764
No e: S anda d e o s in pa en heses. ***, **, and * indica e s a is ical signi icance a he 1%, 5%, and 10% le els,
espec i ely.
The signi ican posi i e coe icien o Lagged GDP G ow h (0.321 *, p< 0.01) indica es
a s ong momen um e ec wi hin he GCC economies. This sugges s ha pas economic
pe o mance plays an essen ial ole in shaping cu en g ow h, ein o cing he idea ha he
economic ajec o y o hese coun ies is hea ily in luenced by sus ained g ow h ends.
This pe sis ence e ec is cha ac e is ic o dynamic models and emphasizes he impo ance
o main aining economic momen um.
The posi i e and signi ican e ec o OR (0.145, p< 0.05) highligh s he con inued im-
po ance o oil e enues in d i ing sho - e m g ow h. Howe e , he po en ial diminishing
Economies 2024,12, 287 22 o 29
e u ns associa ed wi h oil en s poin o he isks o esou ce dependency. As he egion
emains highly elian on na u al esou ces, pa icula ly oil, he esul s sugges ha his
dependence may no be sus ainable in he long un. This aligns wi h he esou ce cu se
hypo hesis, whe e economies dependen on na u al esou ce ex ac ion o en expe iences
slowe long- e m g ow h due o ex e nal p ice luc ua ions and declining e u ns o e
ime. These indings ein o ce he need o economic di e si ica ion in he GCC o educe
ulne abili y o global oil p ice shocks and ensu e mo e sus ainable g ow h.
FDI eme ges as a key d i e o economic g ow h in he egion, wi h a posi i e and
signi ican coe icien (0.297, p< 0.05). This unde sco es he impo ance o a ac ing ex e nal
in es men o suppo in as uc u e de elopmen , echnology ans e , and job c ea ion.
The ole o FDI in d i ing g ow h highligh s he po en ial o ex e nal capi al o compensa e
o he limi a ions o oil en s and os e mo e di e si ied economic de elopmen .
Simila ly, bo h TB (0.0589, p< 0.05) and GCF (0.0893, p< 0.1) con ibu e posi i ely o
GDP g ow h. A a o able ade balance and s ong domes ic capi al o ma ion a e i al o
building a esilien economic ounda ion. These indings poin o he impo ance o ade
policies and domes ic in es men s a egies ha can suppo long- e m g ow h by educing
dependency on ola ile oil ma ke s.
While CPI shows a posi i e ela ionship wi h GDP g ow h (0.262, p< 0.05), his
could indica e ha mode a e in la ion is associa ed wi h pe iods o economic expansion.
In la ion may be a byp oduc o inc eased demand du ing g ow h pe iods, hough i mus
be managed ca e ully o p e en i om becoming a des abilizing o ce. This highligh s he
need o ca e ul in la ion managemen policies o suppo sus ainable g ow h.
The nega i e and signi ican impac o he UN (
−
1.254 *, p< 0.01) u he unde sco es
he impo ance o add essing labo ma ke ine iciencies. High unemploymen a es hinde
economic de elopmen by educing p oduc i i y and consump ion, making labo ma ke
e o ms essen ial o achie ing sus ained g ow h. E o s o lowe unemploymen a e
c i ical o ensu ing ha he bene i s o economic expansion a e mo e b oadly sha ed and
ha p oduc i i y emains obus o e he long e m.
PS also plays a signi ican ole in suppo ing g ow h, wi h a posi i e coe icien o
0.0347 (p< 0.05). Poli ical s abili y os e s a conduci e en i onmen o in es men and eco-
nomic de elopmen , highligh ing he impo ance o go e nance and ins i u ional s eng h
in d i ing long- e m economic pe o mance. S able poli ical en i onmen s encou age in-
es o con idence, which is c ucial o sus aining g ow h in he ace o global unce ain ies.
The obus ness o he dynamic GMM model is suppo ed by he diagnos ic esul s
p esen ed in Table 15. The A ellano–Bond es o i s -o de au oco ela ion (AR1) e u ns
a s a is ically signi ican esul (p= 0.0352), while he second-o de au oco ela ion es
(AR2) is no signi ican (p= 0.1897). The absence o second-o de au oco ela ion con i ms
ha he model is no biased by se ial co ela ion, ensu ing he eliabili y o he es ima es.
Addi ionally, he Sa gan es o ins umen alidi y epo s a p- alue o 0.2764, indica -
ing ha he ins umen s used in he GMM es ima ion a e alid and no o e -iden i ied.
These diagnos ic esul s alida e he model’s speci ica ion and con i m he obus ness o
he indings.
Table 15. Au oco ela ion and o e iden i ica ion es esul s.
Tes Tes S a is ic p-Value
Fi s -Di e ence A ellano–Bond Tes (AR1) −2.11 0.0352
Second-Di e ence A ellano–Bond Tes (AR2) −1.31 0.1897
Sa gan Tes o Ins umen Validi y 23.76 0.2764
O e all, he dynamic GMM esul s o e aluable insigh s in o he key d i e s o
GDP g ow h in he GCC. While oil en s emain impo an in he sho e m, he indings
emphasize he need o di e si ica ion o mi iga e he isks associa ed wi h esou ce de-
pendency. The posi i e con ibu ions o FDI, TB, and GCF highligh he impo ance o
ex e nal and in e nal in es men s in d i ing long- e m economic pe o mance. A he same
Economies 2024,12, 287 23 o 29
ime, add essing challenges such as in la ion, unemploymen , and poli ical s abili y will be
c ucial o sus aining economic g ow h and building esilience agains u u e shocks.
5. Discussion
This s udy p o ides c i ical insigh s in o he ela ionship be ween ma ke capi aliza-
ion, oil en s, and socio-economic ac o s in shaping GDP g ow h in he Gul Coope a ion
Council (GCC) coun ies. By employing a dynamic panel app oach, we o e e idence
suppo ing he need o economic di e si ica ion o sus ain long- e m g ow h. Ou ind-
ings ad ance he li e a u e on he esou ce cu se and con ibu e o unde s anding he
ole o o eign di ec in es men (FDI) and g oss capi al o ma ion (GCF) in esou ce-
dependen economies.
5.1. Resou ce Cu se and Economic Di e si ica ion
Consis en wi h he esou ce cu se hypo hesis, ou esul s demons a e ha while
oil en s con ibu e posi i ely o sho - e m GDP g ow h, hei long- e m sus ainabili y
is ques ionable. The diminishing e ec o oil en s as addi ional a iables a e in oduced
in o ou models suppo s Hypo hesis 2, which posi ed ha oil en s cons ain long- e m
economic expansion. This inding aligns wi h p io esea ch (Sachs and Wa ne 2001;
Fuinhas e al. 2015) ha a gues oil- ich economies o en expe iences unde de elopmen o
non-oil sec o s, limi ing inno a ion and making hem ulne able o ex e nal shocks. The
addi ion o a iables like o eign di ec in es men (FDI) and in la ion u he e eals he
diminishing ole o oil en s in d i ing GDP g ow h. As FDI lows inc ease, hey con ibu e
o economic di e si ica ion and he de elopmen o non-oil sec o s, he eby educing he
ela i e impo ance o oil en s. Simila ly, in la ion can e ode he pu chasing powe o oil
e enues, u he weakening hei con ibu ion o long- e m g ow h. This suppo s he
no ion ha oil en s, while signi ican in he sho e m, lose hei in luence as economies
begin o di e si y and ely on a b oade base o in es men and mac oeconomic s abili y.
The con ibu ion o ou s udy lies in e ining he esou ce cu se heo y by demon-
s a ing ha FDI plays a c i ical ole in mi iga ing i s ad e se e ec s. While oil en s
a e signi ican in he sho e m, he impo ance o ex e nal in es men s such as FDI o
long- e m g ow h sugges s ha a ac ing o eign capi al is essen ial o di e si ica ion
e o s. These esul s unde sco e he necessi y o s uc u al e o ms aimed a educing
eliance on oil and p omo ing non-oil sec o s, including echnology, manu ac u ing, and
se ices. Fu u e s udies could in es iga e he speci ic mechanisms h ough which FDI
os e s inno a ion and s uc u al ans o ma ion in oil-dependen economies.
5.2. Ma ke Capi aliza ion and Financial Ma ke De elopmen
Al hough ma ke capi aliza ion exhibi s a posi i e ela ionship wi h GDP g ow h,
i s signi icance is limi ed, pa icula ly when compa ed o o he a iables such as ade
balance and FDI. This pa ially suppo s Hypo hesis 1, which sugges ed ha while ma ke
capi aliza ion can d i e economic g ow h ini ially, i s impac diminishes o e ime wi hou
s uc u al e o ms. The de elopmen o inancial ma ke s in he GCC emains c ucial o
unding di e si ica ion e o s, bu ou esul s sugges ha inancial ma ke g ow h alone is
insu icien wi hou complemen a y policies ocused on egula o y quali y and go e nance.
These indings add o he li e a u e by highligh ing ha ma ke capi aliza ion mus be
suppo ed by b oade economic e o ms o os e long- e m sus ainabili y. High- anking
s udies on inancial ma ke s in esou ce-dependen economies (e.g., Ku onen 2015) also em-
phasize he need o sound egula o y amewo ks o ensu e s abili y and mi iga e po en ial
isks. Policymake s should he e o e ocus on imp o ing egula o y o e sigh and os e ing
inancial ma ke esilience as pa o hei b oade economic di e si ica ion s a egies.
5.3. The Role o FDI and G oss Capi al Fo ma ion (GCF)
Ou esul s indica e ha FDI and GCF eme ge as he mos c i ical d i e s o sus ainable
long- e m g ow h. Hypo hesis 3, which pos ula ed ha FDI and GCF play pi o al oles in
Economies 2024,12, 287 24 o 29
economic g ow h, is s ongly suppo ed by ou indings. FDI’s posi i e impac on GDP
g ow h con i ms i s impo ance in p o iding ex e nal capi al, echnological ans e , and
p oduc i i y imp o emen s, echoing indings om Bo ensz ein e al. (1998) and Al a o
e al. (2004).
Mo eo e , he signi ican e ec o GCF highligh s he impo ance o domes ic in es -
men in physical in as uc u e, machine y, and equipmen , which lays he ounda ion
o di e si ica ion. Policymake s in he GCC should no only a ac FDI bu also ocus
on s imula ing domes ic in es men h ough a o able policies and incen i es aimed a
inc easing G oss Capi al Fo ma ion. Fu u e esea ch could explo e he speci ic sec o s
whe e FDI and domes ic in es men yield he highes e u ns in e ms o di e si ica ion
and inno a ion.
5.4. In la ion and Unemploymen
Ou indings show ha in la ion has a posi i e e ec on GDP g ow h, pa icula ly
when i emains mode a e, con i ming he exis ence o an in la ion-g ow h h eshold, as
sugges ed by Khan and Ssnhadji (2001). Howe e , in la ion mus be ca e ully managed
o a oid des abilizing economic g ow h. In con as , unemploymen exe s a signi ican
nega i e e ec on GDP, unde sco ing he u gen need o labo ma ke e o ms. High
unemploymen a es, pa icula ly in he GCC, signal he unde u iliza ion o human capi al,
which is a key ba ie o economic e iciency and di e si ica ion.
This esul ein o ces he impo ance o aligning educa ion wi h ma ke needs and
p omo ing labo ma ke lexibili y. Policymake s mus add ess unemploymen h ough
job c ea ion s a egies ha a ge bo h he you h and emale wo k o ce, which emain
unde ep esen ed in many GCC economies. By in es ing in human capi al de elop-
men , he GCC coun ies can c ea e a mo e dynamic labo ma ke ha suppo s long- e m
economic s abili y.
5.5. Human De elopmen and Long-Te m Sus ainabili y
Al hough human de elopmen indica o s (HDI) did no show immedia e signi icance
in he sho - e m analysis, he long- e m bene i s o in es ing in human capi al canno be
o e looked. Ou indings sugges ha human capi al de elopmen , h ough in es men s
in educa ion, heal hca e, and esea ch and de elopmen , will be c ucial o sus ained
economic g ow h and di e si ica ion in he GCC. Human capi al in es men s, pa icula ly
in educa ion and heal hca e, equi e ime o build he necessa y in as uc u e, de elop
skilled labo , and imp o e ins i u ional quali y, which explains hei limi ed impac on sho -
e m economic g ow h. Howe e , in he long un, hese in es men s enhance wo k o ce
p oduc i i y, p omo e inno a ion, and con ibu e o economic di e si ica ion, all o which
a e essen ial o sus ained g ow h in esou ce-dependen economies like hose o he GCC.
This is consis en wi h esea ch showing ha human capi al, measu ed h ough he
HDI, plays a c i ical ole in long- e m p oduc i i y and inno a ion (Mab ouk and Ab-
dul ahim 2021). Policymake s in GCC coun ies should con inue o p io i ize educa ion
and heal hca e e o ms, ecognizing ha hese in es men s, while no immedia ely boos -
ing GDP g ow h, a e c ucial o suppo ing u u e di e si ica ion e o s. Fu u e s udies
should explo e he long- e m causal ela ionship be ween human capi al de elopmen and
economic di e si ica ion in esou ce-dependen economies.
5.6. Vulne abili y o Global Shocks and he Pe o mance o Oil Ren s
GCC coun ies a e pa icula ly ulne able o global economic shocks due o hei
hea y eliance on oil en s o go e nmen e enues and o eign exchange ea nings. Du -
ing global c ises such as he 2008 inancial c isis and he COVID-19 pandemic, global
demand o oil plumme ed, leading o se e e iscal p essu es o hese economies. Reduced
go e nmen spending ollowed, u he dep essing economic ac i i y and highligh ing he
inhe en ulne abili y ha comes wi h o e dependence on oil expo s. Despi e e o s o
di e si y, many GCC economies s ill lack su icien non-oil sec o s o abso b he economic
