Former Associate 9/2008-12/2011, The Dubai Initiative
By Tarek Coury, Former Associate 9/2008-12/2011, The Dubai Initiative
Dubai Initiative Associate Tarek Coury and Associate Dean of the Dubai School of Government Mohamed Lahouel develop a modified version of the standard Solow and Ramsey growth models suited for countries with high proportions of foreign workers: firms hire foreign workers who are assumed to send a proportion of their wages as remittances. The paper shows that as the (foreign) supply of labor becomes more elastic, per capita income growth along the transitional dynamics converges to zero, the effect of TFP growth on per capita growth gradually disappears and growth in overall output converges to an AK-style model of growth.
In a bid to reduce their dependency on oil and natural gas revenues, GCC governments have recently invested considerable resources to diversify their economies.This paper provides an empirical assessment of economic diversification in the GCC for the period 1980-2005. In particular we assess whether oil and natural gas revenues, government policies and foreign flows of labor have contributed to greater economic diversification, proxied by real growth in non-hydrocarbon GDP per worker. To our knowledge, this is the first paper that analyzes economic diversification in the Gulf using panel data techniques that explicitly treat the GCC as an economic block.
We find that lagged hydrocarbon revenue is the only variable consistently associated with subsequent economic diversification; this is in contrast to government expenditures whose impact on diversification is negative, large, and significant. We also find that population growth has little impact on either growth of overall GDP per worker or non-hydrocarbon GDP per worker; we present an economic growth model that takes into account features of the labor market structure in the Gulf to explain this finding. Finally, we present some empirical evidence consistent with claims of greater macroeconomic and financial integration within the GCC.