From Oil Reliance to Economic Resilience: Panel Data Evidence on Diversification Drivers in the GCC over Two Decades

DOI

10.2991/978-94-6239-743-9_5How to use a DOI?

Keywords

Economic diversification; Gulf Cooperation Council; oil dependence; trade openness; foreign direct investment; panel data

Abstract

This study investigates the macroeconomic drivers of economic diversification in the Gulf Cooperation Council (GCC) countries over the period 2000–2023. Given the region’s heavy reliance on oil revenues, the paper examines how trade openness, foreign direct investment (FDI), government spending, financial development, human capital, and oil price volatility affect diversification. Using panel data for six GCC countries, we apply a robust econometric framework that includes panel ARDL, panel VAR, panel Granger causality tests, and forecast error variance decomposition (FEVD) to capture both short-run and long-run relationships. The results show that trade openness, FDI, and human development significantly promote diversification, while oil price volatility exerts a strong negative effect, supporting the resource curse hypothesis. Government spending is statistically insignificant, and financial development, though positive, has no significant direct impact. The FEVD analysis highlights the persistence of diversification and the dominant roles of trade openness and FDI. Our findings offer policy-relevant insights, suggesting that GCC countries should promote targeted FDI, strengthen financial sector reforms, and invest in human capital to achieve sustainable economic diversification and reduce vulnerability to oil shocks.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Mesbah Fathy Sharaf
AU  - Abdelhalem Shahen
PY  - 2026
DA  - 2026/08/11
TI  - From Oil Reliance to Economic Resilience: Panel Data Evidence on Diversification Drivers in the GCC over Two Decades
BT  - Proceedings of API Conference 2025: Empowering the future: Energy Transition and Economic Diversification in Arab Countries
PB  - Atlantis Press
SP  - 66
EP  - 85
SN  - 3005-155X
UR  - https://doi.org/10.2991/978-94-6239-743-9_5
DO  - 10.2991/978-94-6239-743-9_5
ID  - Sharaf2026
ER  -