The Role of Innovation in Promoting Economic Diversification In Mena Oil-Exporting Countries: An Empirical Study

Abstract

This paper casts light on the role innovation seems to play in accelerating economic diversification in 11 MENA oil-exporting countries over the period 1996-2019. More specifically, the novelty of this paper principally lies in detecting the rate of increase in the level of economic diversification if these countries’ rates of innovation will be on par with those of a country that has successfully diversified its export base, like Canada. The results gleaned from using the Arellano-Bond difference GMM estimator demonstrate that strengthening innovation can give a sturdy impetus to economic diversification in oil-rich MENA countries. More precisely, the GCC countries' level of innovation-driven economic diversification is likely to increase more rapidly than that of non-GCC countries. The findings also illustrate that MENA oil exporters’ economic diversification seems to be positively and significantly influenced by governance, human development, credit to the private sector, and economic freedom. Surprisingly, oil rents appear to genuinely frustrate these countries' efforts to diversify their economies. Furthermore, good governance and oil revenues can jointly speed up these countries’ economic diversification. More importantly, the results distinctly unearthed that MENA oil exporters’ economic diversification will increase by 1.77% if their innovation rates can catch up with those of Canada. By and large, encouraging innovation and technological development proved to be a truly giant step forward in these countries’ endeavors for economic diversification.