Gulf countries implement diversification programs to create permanent sources of income

Within the framework of the efforts exerted by the Arab Monetary Fund in the field of studies and research activity with the aim of supporting the authorities in the Arab countries in the priority issues of economic and financial policies, the Fund issued within the framework of “a series of economic studies” a study on “the asymmetry of the response of economic growth to fluctuations in oil prices in the GCC countries” Cooperation for the Arab Gulf States.
The study aims to measure the asymmetric effects of fluctuations in global oil prices on economic growth in the countries of the Cooperation Council for the Arab States of the Gulf during the period from 2000 to 2019, in addition to taking into account the impact of three drivers of economic activity: investment, work, and trade openness. The study also provides an analytical framework for policy makers in the region, which contributes to enhancing the understanding of the asymmetric relationship between economic growth and global oil prices, and thus developing appropriate policies.
The relationship between economic growth and world oil prices has been extensively evaluated in the literature, where applied studies have shown that the response of economic growth to fluctuations in oil prices in developed and developing economies is different, and depends on whether the country is an exporter or importer of oil. A theoretical explanation of the relationship between economic growth and world oil prices focuses on the effects of both the demand and supply sides.
On the demand side, lower oil prices increase the disposable income of oil-importing economies, thus boosting demand for other commodities. On the supply side, the increase in oil prices affects energy-based products, as it generates increases in production costs, thus raising prices and affecting economic growth.
The results indicate that the real GDP is affected by changes in international oil prices, and this effect becomes more clear and important after dividing oil prices into positive and negative changes. In this context, the results showed that positive changes in oil prices have a positive and moral effect on real GDP, while negative changes in oil prices negatively and significantly affect real GDP.
In addition, the response of real GDP to lower oil prices is greater than the response to higher oil prices, which indicates that economic activity is more sensitive to negative oil price shocks than positive shocks. These results explain the tendency of most of the countries of the Cooperation Council for the Arab States of the Gulf to implement economic diversification programs to reduce the dependence of their economies on oil, especially in times of low prices, thus creating alternative and permanent sources of income.