The Role of Innovation in Promoting Economic Diversification In Mena Oil-Exporting Countries: An Empirical Study*
##plugins.themes.bootstrap3.article.main##
##plugins.themes.bootstrap3.article.sidebar##
Published
Mar 24, 2024
Copyright Information
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Abstract
This paper casts light on the role innovation seems to play in accelerating economic diversification in 11 MENA oil-exporting countries over the period 1996-2019. More specifically, the novelty of this paper principally lies in detecting the rate of increase in the level of economic diversification if these countries’ rates of innovation will be on par with those of a country that has successfully diversified its export base, like Canada. The results gleaned from using the Arellano-Bond difference GMM estimator demonstrate that strengthening innovation can give a sturdy impetus to economic diversification in oil-rich MENA countries. More precisely, the GCC countries' level of innovation-driven economic diversification is likely to increase more rapidly than that of non-GCC countries. The findings also illustrate that MENA oil exporters’ economic diversification seems to be positively and significantly influenced by governance, human development, credit to the private sector, and economic freedom. Surprisingly, oil rents appear to genuinely frustrate these countries' efforts to diversify their economies. Furthermore, good governance and oil revenues can jointly speed up these countries’ economic diversification. More importantly, the results distinctly unearthed that MENA oil exporters’ economic diversification will increase by 1.77% if their innovation rates can catch up with those of Canada. By and large, encouraging innovation and technological development proved to be a truly giant step forward in these countries’ endeavors for economic diversification.
##plugins.themes.bootstrap3.article.details##
Keywords
Economic diversificationInnovationOil rentsMENA oil-exporting countries
References
• Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277-97. https://doi.org/10.2307/2297968
• Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51. https://doi.org/10.1016/0304-4076(94)01642-d
• Arezki, R., & Brückner, M. (2011). Oil rents, corruption, and state stability: Evidence from panel data regressions. European Economic Review, 55(7), 955-963. https://doi.org/10.1016/j.euroecorev.2011.03.004
• Barro, R. J. (2001). Human capital and growth. American Economic Review, 91(2), 12-17. https://doi.org/10.1257/aer.91.2.12
• Beutel, J. (2021). Economic diversification and sustainable development of GCC countries. In G. Luciani & T. Moerenhout (Eds.). When Can Oil Economies Be Deemed Sustainable? (pp. 99-151). Palgrave Macmillan, Singapore. https://link.springer.com/content/pdf/10.1007/978-981-15-5728-6_6
• Bhattacharyya, S., & Hodler, R. (2014). Do natural resource revenues hinder financial development?: The role of political institutions. World Development, 57, 101–113. https://doi.org/10.1016/j.worlddev.2013.12.003
• Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/s0304-4076(98)00009-8
• Cieślik, A., & Parteka, A. (2021). Relative productivity, country size and export diversification. Structural Change and Economic Dynamics, 57, 28–44. https://doi.org/10.1016/j.strueco.2021.01.002
• Claessens, S. (2006). Access to financial services: A review of the issues and public policy objectives. The World Bank Research Observer, 21(2), 207–240. https://doi.org/10.1093/wbro/lkl004
• Dutta, S., Lanvin, B., & Wunsch-Vincent, S. (2020). The Global Innovation Index 2020: Who Will Finance Innovation?. Ithaca, Fontainebleau, and Geneva: Cornell University, INSEAD, and the World Intellectual Property Organization. https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2020.pdf
• Esanov, A. (2012). Economic diversification: Dynamics, determinants and policy implications. Revenue Watch Institute, 8, 1-26. https://resourcegovernance.org/sites/default/files/RWI_Economic_Diversification.pdf
• Hansen, B. E., & West, K. D. (2002). Generalized method of moments and macroeconomics. Journal of Business & Economic Statistics, 20(4), 460–469. https://doi.org/10.1198/073500102288618603
• Hendrix, C. S. (2017). Kicking a crude habit: diversifying away from oil and gas in the twenty-first century. International Review of Applied Economics, 33(2), 188–208. https://doi.org/10.1080/02692171.2017.1389862
• Hvidt, M. (2021). Economic diversification and job creation in the Arab Gulf countries: Applying a value chain perspective. In G. Luciani & T. Moerenhout (Eds.). When Can Oil Economies Be Deemed Sustainable? (pp. 281-300). Palgrave Macmillan, Singapore. https://link.springer.com/content/pdf/10.1007/978-981-15-5728-6_11
• International Energy Agency (IEA) (2018). Outlook for Producer Economies 2018: What Do Changing Energy Dynamics Mean For Major Oil and Gas Exporters?. Paris: International Energy Agency (IEA). https://iea.blob.core.windows.net/assets/5798254b-0e2c-4104-91c4-d420f105863b/WEO_2018_Special_Report_Outlook_for_Producer_Economies.pdf
• Joya, O. (2015). Growth and volatility in resource-rich countries: Does diversification help? Structural Change and Economic Dynamics, 35, 38–55. https://doi.org/10.1016/j.strueco.2015.10.001
• Kim, M., D., & Ferrer Morera, G. (2017). Improving firms' innovation to foster productivity and diversification. World Bank Report No. ACS22413. World Bank, Washington, D.C. http://hdl.handle.net/10986/28280
• Klinger, B., & Lederman, D. (2006). Innovation and export portfolios. World Bank Policy Research Working Paper No. 3983. World Bank, Washington, D.C. http://hdl.handle.net/10986/8362
• Lamberg, J., A., Ojala, J., Peltoniemi, M., & Särkkä, T. (2012). The Evolution of Global Paper Industry 1800–2050: A Comparative Analysis. Springer, Dordrecht. https://link.springer.com/book/10.1007/978-94-007-5431-7
• Mazarei, A. (2019). Efforts of oil exporters in the Middle East and North Africa to diversify away from oil have fallen short. Peterson Institute for International Economics Policy Brief No. PB 19-6. https://www.piie.com/sites/default/files/documents/pb19-6.pdf
• Namazi, M., & Mohammadi, E. (2018). Natural resource dependence and economic growth: A TOPSIS/DEA analysis of innovation efficiency. Resources Policy, 59, 544–552. https://doi.org/10.1016/j.resourpol.2018.09.015
• Osakwe, P. N., & Moussa, N. (2017). Innovation, diversification and inclusive development in Africa. UNCTAD Research Paper No.2. https://unctad.org/system/files/official-document/ser-rp-2017d2_en.pdf
• Osakwe, P. N., Santos-Paulino, A. U., & Dogan, B. (2018). Trade dependence, liberalization, and exports diversification in developing countries. Journal of African Trade, 5(1-2), 19–34. https://doi.org/10.1016/j.joat.2018.09.001
• Osakwe, P., N. (2016). Transformative regionalism, trade and the challenge of poverty reduction in Africa. In A. Gutowski, T. Knedlik, P. N. Osakwe, I. Ramdoo, & K. Wohlmuth (Eds.). Africa's Progress in Regional and Global Economic Integration: Towards Transformative Regional Integration (pp. 23–48). LIT VERLAG GmbH, Zurich. https://www.lit-verlag.de/isbn/978-3-643-90523-9
• Pomfret, R. (2013). The Economic Development of Canada. Routledge, Toronto. https://doi.org/10.4324/9781315019550
• Pritchett, L., Sen, K., & Werker, E. (2017). Deals and Development: The Political Dynamics of Growth Episodes. Oxford: Oxford University Press. https://global.oup.com/academic/product/deals and development 9780198801641?cc=dz&lang=en&#
• Sæther, B., Isaksen, A., & Karlsen, A. (2011). Innovation by co-evolution in natural resource industries: The Norwegian experience. Geoforum, 42(3), 373–381. https://doi.org/10.1016/j.geoforum.2011.01.008
• Schwab, K., & Sala-i-Martin, X. (2017). The Global Competitiveness Report 2017–2018. World Economic Forum, Geneva. https://www3.weforum.org/docs/GCR2017 2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf
• Stepanyan, V., Abajyan, G., Ndoye, A., & Alnasaa, M. (2019). Enhancing the role of SMEs in the Arab World—Some key considerations. Policy Papers, 19(040). https://doi.org/10.5089/9781513522760.007
• Tsani, S. (2013). Natural resources, governance and institutional quality: The role of resource funds. Resources Policy, 38(2), 181–195. https://doi.org/10.1016/j.resourpol.2012.11.001
• World Bank (2019). Economic diversification for a sustainable and resilient GCC. Gulf Economic Update No. 5. World Bank, Washington, DC.. http://documents1.worldbank.org/curated/en/886531574883246643/pdf/Economic-Diversification-for-a-Sustainable-and-Resilient-GCC.pdf
• World Intellectual Property Organization (WIPO). (2021). Evaluation of the WIPO Division for Arab Countries. WIPO, Geneva. https://www.wipo.int/export/sites/www/about wipo/en/oversight/iaod/evaluation/pdf/210611_division_for_arab_countries_evaluation_report_for_publishing.pdf
• Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51. https://doi.org/10.1016/0304-4076(94)01642-d
• Arezki, R., & Brückner, M. (2011). Oil rents, corruption, and state stability: Evidence from panel data regressions. European Economic Review, 55(7), 955-963. https://doi.org/10.1016/j.euroecorev.2011.03.004
• Barro, R. J. (2001). Human capital and growth. American Economic Review, 91(2), 12-17. https://doi.org/10.1257/aer.91.2.12
• Beutel, J. (2021). Economic diversification and sustainable development of GCC countries. In G. Luciani & T. Moerenhout (Eds.). When Can Oil Economies Be Deemed Sustainable? (pp. 99-151). Palgrave Macmillan, Singapore. https://link.springer.com/content/pdf/10.1007/978-981-15-5728-6_6
• Bhattacharyya, S., & Hodler, R. (2014). Do natural resource revenues hinder financial development?: The role of political institutions. World Development, 57, 101–113. https://doi.org/10.1016/j.worlddev.2013.12.003
• Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/s0304-4076(98)00009-8
• Cieślik, A., & Parteka, A. (2021). Relative productivity, country size and export diversification. Structural Change and Economic Dynamics, 57, 28–44. https://doi.org/10.1016/j.strueco.2021.01.002
• Claessens, S. (2006). Access to financial services: A review of the issues and public policy objectives. The World Bank Research Observer, 21(2), 207–240. https://doi.org/10.1093/wbro/lkl004
• Dutta, S., Lanvin, B., & Wunsch-Vincent, S. (2020). The Global Innovation Index 2020: Who Will Finance Innovation?. Ithaca, Fontainebleau, and Geneva: Cornell University, INSEAD, and the World Intellectual Property Organization. https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2020.pdf
• Esanov, A. (2012). Economic diversification: Dynamics, determinants and policy implications. Revenue Watch Institute, 8, 1-26. https://resourcegovernance.org/sites/default/files/RWI_Economic_Diversification.pdf
• Hansen, B. E., & West, K. D. (2002). Generalized method of moments and macroeconomics. Journal of Business & Economic Statistics, 20(4), 460–469. https://doi.org/10.1198/073500102288618603
• Hendrix, C. S. (2017). Kicking a crude habit: diversifying away from oil and gas in the twenty-first century. International Review of Applied Economics, 33(2), 188–208. https://doi.org/10.1080/02692171.2017.1389862
• Hvidt, M. (2021). Economic diversification and job creation in the Arab Gulf countries: Applying a value chain perspective. In G. Luciani & T. Moerenhout (Eds.). When Can Oil Economies Be Deemed Sustainable? (pp. 281-300). Palgrave Macmillan, Singapore. https://link.springer.com/content/pdf/10.1007/978-981-15-5728-6_11
• International Energy Agency (IEA) (2018). Outlook for Producer Economies 2018: What Do Changing Energy Dynamics Mean For Major Oil and Gas Exporters?. Paris: International Energy Agency (IEA). https://iea.blob.core.windows.net/assets/5798254b-0e2c-4104-91c4-d420f105863b/WEO_2018_Special_Report_Outlook_for_Producer_Economies.pdf
• Joya, O. (2015). Growth and volatility in resource-rich countries: Does diversification help? Structural Change and Economic Dynamics, 35, 38–55. https://doi.org/10.1016/j.strueco.2015.10.001
• Kim, M., D., & Ferrer Morera, G. (2017). Improving firms' innovation to foster productivity and diversification. World Bank Report No. ACS22413. World Bank, Washington, D.C. http://hdl.handle.net/10986/28280
• Klinger, B., & Lederman, D. (2006). Innovation and export portfolios. World Bank Policy Research Working Paper No. 3983. World Bank, Washington, D.C. http://hdl.handle.net/10986/8362
• Lamberg, J., A., Ojala, J., Peltoniemi, M., & Särkkä, T. (2012). The Evolution of Global Paper Industry 1800–2050: A Comparative Analysis. Springer, Dordrecht. https://link.springer.com/book/10.1007/978-94-007-5431-7
• Mazarei, A. (2019). Efforts of oil exporters in the Middle East and North Africa to diversify away from oil have fallen short. Peterson Institute for International Economics Policy Brief No. PB 19-6. https://www.piie.com/sites/default/files/documents/pb19-6.pdf
• Namazi, M., & Mohammadi, E. (2018). Natural resource dependence and economic growth: A TOPSIS/DEA analysis of innovation efficiency. Resources Policy, 59, 544–552. https://doi.org/10.1016/j.resourpol.2018.09.015
• Osakwe, P. N., & Moussa, N. (2017). Innovation, diversification and inclusive development in Africa. UNCTAD Research Paper No.2. https://unctad.org/system/files/official-document/ser-rp-2017d2_en.pdf
• Osakwe, P. N., Santos-Paulino, A. U., & Dogan, B. (2018). Trade dependence, liberalization, and exports diversification in developing countries. Journal of African Trade, 5(1-2), 19–34. https://doi.org/10.1016/j.joat.2018.09.001
• Osakwe, P., N. (2016). Transformative regionalism, trade and the challenge of poverty reduction in Africa. In A. Gutowski, T. Knedlik, P. N. Osakwe, I. Ramdoo, & K. Wohlmuth (Eds.). Africa's Progress in Regional and Global Economic Integration: Towards Transformative Regional Integration (pp. 23–48). LIT VERLAG GmbH, Zurich. https://www.lit-verlag.de/isbn/978-3-643-90523-9
• Pomfret, R. (2013). The Economic Development of Canada. Routledge, Toronto. https://doi.org/10.4324/9781315019550
• Pritchett, L., Sen, K., & Werker, E. (2017). Deals and Development: The Political Dynamics of Growth Episodes. Oxford: Oxford University Press. https://global.oup.com/academic/product/deals and development 9780198801641?cc=dz&lang=en&#
• Sæther, B., Isaksen, A., & Karlsen, A. (2011). Innovation by co-evolution in natural resource industries: The Norwegian experience. Geoforum, 42(3), 373–381. https://doi.org/10.1016/j.geoforum.2011.01.008
• Schwab, K., & Sala-i-Martin, X. (2017). The Global Competitiveness Report 2017–2018. World Economic Forum, Geneva. https://www3.weforum.org/docs/GCR2017 2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf
• Stepanyan, V., Abajyan, G., Ndoye, A., & Alnasaa, M. (2019). Enhancing the role of SMEs in the Arab World—Some key considerations. Policy Papers, 19(040). https://doi.org/10.5089/9781513522760.007
• Tsani, S. (2013). Natural resources, governance and institutional quality: The role of resource funds. Resources Policy, 38(2), 181–195. https://doi.org/10.1016/j.resourpol.2012.11.001
• World Bank (2019). Economic diversification for a sustainable and resilient GCC. Gulf Economic Update No. 5. World Bank, Washington, DC.. http://documents1.worldbank.org/curated/en/886531574883246643/pdf/Economic-Diversification-for-a-Sustainable-and-Resilient-GCC.pdf
• World Intellectual Property Organization (WIPO). (2021). Evaluation of the WIPO Division for Arab Countries. WIPO, Geneva. https://www.wipo.int/export/sites/www/about wipo/en/oversight/iaod/evaluation/pdf/210611_division_for_arab_countries_evaluation_report_for_publishing.pdf
How to Cite
Matallah, S. (2024). The Role of Innovation in Promoting Economic Diversification In Mena Oil-Exporting Countries: An Empirical Study*. Academic Network for Development Dialogue (ANDD) Paper Series, 1(1). https://doi.org/10.29117/andd.2022.013
Issue
Section
Articles in Arabic