The Effect of Export Diversification on the Economic Growth of West-Asian Arab Countries

Abstract

This paper examined the relationship between the patterns of export diversification and economic growth in west Asian Arab countries during the period (2000-2017) using World Bank, UNCTAD, and Pen World data. The study used the DX Diversification Index (UNCTAD). This index measures the country's export divergence from the world's diversification patterns. The OLS and FMOLS methods were used to estimate the study model coefficients. The study found that the exports diversification structures in this group diverged clearly from the world diversification pattern since the exports of group countries driven by a high degree of primary exports concentration. Moreover, the economic growth was influenced positively by human capital, primary products export growth, and the adoption of efficient anti-corruption policies, but, it negatively influenced by trade openness and population growth. The study disclosed a long-term relationship between economic growth and the interactions of explanatory variables in the model, while in the short run the relationship was weak and insignificant. Moreover, there was a reciprocal causality relationship between economic growth and the degree of exports diversification using (DX-index). The study recommends that Arab countries should reduce the reliance on the exports of primary products, enhancing the share of industrial-based exports to achieve sustainable growth and to reduce the impacts of primary export’s prices instability on their economies.