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Volume :18 Issue : 2 2011      Add To Cart                                                                    Download

The Impact of Economic Diversification on the Non- Oil Saudi Economy Growth

Auther : Mamdouh A. Al-Khatib

This study aims to analyze the impact of economic diversification on the growth of the non- oil Saudi economic sector during the period of 1970-2008. Based on the distribution of the GDP by type of economic activities, the study estimates two diversification indicators: Gini index and Herfindal-Hirshman coefficient. The decrease of the diversification indicators over the studied period proves that the Saudi economy has become more diversified. The annual growth rates of Herfindal-Hirshman coefficient and Gini index are estimated at (-2.987%), and (-1.147%), respectively. Based on an extended new classical economic production function, an econometric model is formulated to study the relationship between economic growth of the non- oil Saudi economic sector and the diversification indicators. The economic growth which was considered as a dependent variable was explained by the growth rate of three variables: labor force, capital stock, and real oil price. The diversification indicator and a dummy variable are added to explain the growth rate. The econometric results, estimated by OLS, prove a negative relationship between non-oil economic growth and economic diversification indicators, meaning that the increase of diversification degree (decreasing the diversification indicators) has a positive impact on the non- oil economic growth. As the economic diversification increased during the period of 1970-2008 in the Saudi economy, the oil sector still has a very significant weight in the public revenues and the export receipts. If the Saudi economy succeeds to diversify its production, the government revenues and export receipts require serious efforts to be more diversified. The Saudi economy has to enhance other economic activities like agriculture, manufacturing, petrochemicals and tourism to increase the diversification degree and to reduce the weight of oil in the government revenues and exportation returns.

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