Economic diversification and governance challenges in MENA oil exporters: A comparative analysis

Abstract

This paper aims, on the one hand, to investigate the impact of governance on economic diversification in 11 oil-abundant MENA countries and three successful diversifiers (Canada, Norway and Malaysia) over the period 1996–2018 by using the generalized method of moments (GMM) estimator and, on the other hand, to reveal how much the level of economic diversification will increase if MENA oil exporters will have governance scores similar to those of successful diversifiers like Canada, Norway and Malaysia. Higher governance leads to more diversification while higher oil rents lead to poor diversification in MENA oil-exporting countries. The joint impact of good governance and oil rents is effective in boosting economic diversification in MENA oil exporters and peer countries. The results also reveal that the rate of improvement in diversification brought by replacing MENA oil exporters’ governance index with the average governance index of Canada, Norway and Malaysia is 4.5%.