As a depletable resource oil is a useful source of economic growth, but may not be relied upon for long-term sustainable development. Diversification from oil is needed to achieve this. This research applies three models to examine the most important determinants of oil and non-oil sector economic growth in two of the largest economies in the Gulf Cooperation Council (GCC), namely Saudi Arabia and the UAE. The empirical analysis applies the Johansen approach and ECM to access the relationship between all variables, both in the long and short-term. Given the governments’ determination to reduce dependence on oil income, this study focuses on the role of non-oil sectors. Explanatory variables in the models included exports, government spending, investment (private and public), tourism (religious and international), labour and capital, while GDP is used as the dependent variable. The results reflect the fact that the main determinants of economic growth in Saudi Arabia are related to the oil sector. The analysis of the long-term relationship between selected variables in the main model find that total exports have the greatest influence on economic growth, while tourism is the least influential variable. Moreover, empirical results show that all variables are important in the growth of the Saudi economy except non-oil exports. The role of religious tourism is not found to be significant in the process of economic growth when the economy as a whole is taken into consideration. Nonetheless, when isolating the non-oil sectors, the effect of religious tourism has a greater influence on economic growth. Concrete evidence also exists as to the importance of the role of an additional variable – government spending – in enhancing economic growth. In the UAE, the impact of both oil and non-oil sectors is highly prominent. This is particularly evident when the economy is divided into two segments (oil and non-oil). With the exception of government spending and public investment in the non-oil sector, the estimated results show that overall both sectors (oil and non-oil) are in fact responsible for this growth. With regard to tourism, the study’s findings confirm its importance in both models. It is found that non-oil exports in the non-oil sectors have the greatest positive impact on economic growth, followed by tourism and private investment respectively. Overall, this study's outcomes suggest that the omission or exclusion of important variables and factors in non-oil sectors such as tourism and the exclusive concentration of empirical studies on the role of oil exports and government spending as the engines of growth, might be both biased and misleading. This thesis has both theoretical and practical implications. Through isolating the non-oil sector from the oil sector, the study is able to detect and highlight the potential role of tourism as a future crucial factor in determining economic growth in oil rich countries, especially in the GCC.

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