Rampant corruption: The dilemma facing economic diversification in oil-abundant MENA countries

Abstract

This paper aims, on the one hand, to investigate the impact of corruption on economic diversification in 11 oil-abundant MENA countries and three successful diversifiers (Canada, Norway and Malaysia) over the period 1996–2019 by using the Arellano-Bond difference GMM estimator that is effective in addressing the endogeneity problem and, on the other hand, to reveal how much the level of economic diversification will increase if MENA oil exporters will have control of corruption scores similar to that of a successful diversifier like Canada. The main findings indicate that higher control of corruption leads to more diversification while higher oil rents lead to poor diversification in oil-exporting MENA countries. The joint impact of control of corruption and oil rents is effective in boosting economic diversification in MENA oil exporters. The results also reveal that the rate of improvement in diversification brought by replacing MENA oil exporters' control of corruption scores with those of Canada is 0.53%. Closing the control of corruption gap determines how quickly MENA oil exporters can promote economic diversification. Furthermore, non-GCC countries need to exert much more effort compared to GCC countries in order to catch up with Canada's control of corruption level. Most non-GCC countries must first address the serious problem of instability which is an essential precondition for achieving broad-based economic diversification.