GRM 2010 GRM 2011

Abstract Details

Family Name:
First Name:
Title of Paper:
Sustainable development in GCC: Are there any lessons to be learnt from Indian and Chinese growth models?
Paper Proposal Text :

GCC is one of the fastest growing regions in the world economy given the high oil prices, expanded oil production, expansionary fiscal policies, low interest rates and moderate inflation. On the flip side the economies are however heavily dependent on hydrocarbon extraction, a factor that the governments of the GCC economies have realized and are looking at diversification of their economic activities.
But why do GCC economies need to diversify given their economic wealth and prosperity? Many economists and political thinkers point out that had oil supplies been everlasting, and the demand for oil strong and continuous, economic diversification would be pointless. All that the governments would need to do is to ensure distribution of oil revenues among the population. However, in the real world, oil resources are finite and past experience shows that both the price of and the demand for oil have fluctuated considerably. Another important factor for diversification is the simple fact that oil revenues overshadow any other economic activity. Unlike other developed countries where oil extraction and production add on to other economic activities, for GCC countries oil production and extraction is the primary economic activity and almost the exclusive source of wealth. In summary this model of development relies on the sale of hydrocarbons, is state-led and state-driven, emphasizes wealth distribution, makes extensive use of migrant labor, and is characterized by a significant underdevelopment of productive assets. The model therefore fails to support further development of the GCC states in two important respects. First, it fails to generate a stable and sustainable income for the population; and second, it fails to create job opportunities for the growing group of young and well-educated citizens who want to work.
On the other hand the emerging markets of India and China offer another realm of economic reality. China with GDP growth rate exceeding 10% over the last two decades is expected to be one of the leading economic powers in the future. China has followed the conventional growth model tried and tested by many developed countries including the U.S., Japan, South Korea and Taiwan in transitioning from an agricultural economy to a robust industrial economy. The country is building vital linkages among its agricultural, industrial and service sectors, and systematically encouraging domestic consumption in parallel with a sharp focus on exports. Overall the development model followed by China has been methodical and deliberate and guided by the state.
In contrast, India is attempting to jump from a predominantly agricultural economy to a knowledge-based service economy highlighted by economists and leaders as the “shining” beacon of a 21st century economic development model. The country with over 8% GDP growth over the last decade has been promoting a knowledge based economic development model with strong growth in its software and IT-enabled services (SITS, henceforth). Some economists believe that the focus on building a “knowledge economy” will power India ahead of China in the future.
However both the economies are now showing a plateau in the growth phase with the growth rates averaging at around 6-8% over the past few years indicating that none of the model is perfect. For china the areas of concern are increasing urban-rural economic divide and the worsening impact on the environment. For India the model of development has failed to create the vital linkages with other economic sectors which is important to exert a ripple or multiplier effect. Also the SITS sector employs mainly the educated, urban youth, leaving a large fraction of the India’s population further behind creating a lopsided development in the economy.
Given this background our paper looks at understanding the diversification/economic models followed by GCC countries and what best they can take from Chinese and Indian growth experience. Specifically the paper will address the below mentioned points:
• Rationale for diversification for GCC economies and how to assess diversification in GCC economies.
• Current state of diversification of economic activities in GCC economies.
• A look at the future GCC growth model- manufacturing driven or knowledge driven.
• Barriers to growth envisioned in the economic plans and how diversification/economic model can overcome them.
The paper draws on the emerging theoretical and empirical literature on sustainable development and intergeneration equity and looks at the applicability of these theories to the development models of GCC economies.