Case Of The United Arab Emirates Economics Essay

This paper attempts to explicate the determiners of aggregative GDP growing in the United Arab

Emirates as a representative oil-dependent state. After discoursing the public presentation of the

state in the period considered, the determiners of GDP growing were examined. Similar to

old surveies, this survey confirms the predomination of labour in entire GDP growing and a

negative part by Entire Factor Productivity Growth to overall GDP growing ( TFPG ) .

Among other factors, this was attributed to negative prejudices induced by alterations in oil monetary values,

nature of investings and deficiency of skilled labour to complement capital. Econometric consequences

indicate that unlike the instance of states with diverse resources, natural resource copiousness

is a formula for growing in an oil-dependent economic system. In add-on, increased domestic

investing rate, investing in human capital and footings of trade dazes have strong positive

effects on economic growing in the UAE. Growth in the income of trading spouses, and

rising prices besides have positive but weak effects on growing. The paper so discussed the nature

and function of cardinal institutional and policy facets of growing before reasoning with some policy


I. Introduction

The United Arab Emirates ( UAE ) is a federation of seven little Gulf emirates. Before

their brotherhood in a federation they were known as the Trucial States due to the armistices and

associated state understandings with Britain, which dominated the Gulf country in the nineteenth

century through the late 1960ss of the 20th century. Immediately after the backdown of

Britain from the part in 1971, the federation of the UAE was formed.

Before the find of oil in Abu Dhabi in 1958 and in Dubai in 1966, economic

activity in the seven emirates was dominated by pearling and fishing, which provided

employment and income to about 70 per centum of the population ( Ghanem, 1992 ) . The remainder, 30

per centum, of the population were involved in small agribusiness, rural handcraft and herding.

There was barely any sort of industry except for building of wooden boats and simple

handcrafts. The people of the UAE have been involved in trade since ancient times. But their

abroad trade was limited during the domination of the British colonial powers. As we will

explain subsequently, their accrued trade experience seems to turn out fruitful after the find of

oil. The state is hapless in natural resources other than oil. It is virtually a desert with few

oases. With the rough clime and scarceness of H2O and other resources, the population was as

bantam as 180,000 in 1968 compared to 2.8 million at present. Oil wealth has transformed the

economic system of the state dramatically. It enabled the state to travel from a subsistence province


to a modern high-income state. Economic growing and variegation ( though still limited )

can be attributed to four key factors.

First, immense authorities investing in physical and societal substructure helped to

hike economic activity in general and private investing in specific ( Elhiraika and Hamed,

2001 ) . Second, a stable macroeconomic environment, which is characterized by low rising prices

rates and semi-fixed exchange rate, and authorities policies. Third, handiness of capital

and absence of limitations on capital motion together with a high grade of openness

opened the door for singular growing in foreign trade. Finally, handiness of comparatively

inexpensive labour from neighbouring Arab states and the Indian subcontinent.

However, like the typical oil-rich little states in the Middle East and North Africa

( MENA ) part, the UAE has until late relied to a great extent on oil exports. With widely

fluctuating and by and large worsening oil monetary values and grosss in the last two decennaries, the

state has since the mid 1980s exerted noteworthy attempts aimed at accomplishing economic

variegation. These attempts have led to sustained investing in the non-oil sectors,

particularly in fabrication and other sectors that are progressively dominated by private

capital. By the bend of the 1990s, non-oil exports and non-oil GDP have exceeded their

several oil opposite numbers for the first clip since the oil development began. As a consequence, the

UAE economic system has been late classified as the most comparatively good diversified1 economic system

in the gulf part ( Askari and Jaber, 1999 ) with an mean existent GDP growing rate of about 5 %

for the period 1975-1999. This growing rate is good above the norm of aa‚¬ ” 2.2 % for MENA

oil-exporting states in 1971-1998 ( see Makdisi and Limam, 2000 ) . Besides the UAE

economic system has been extremely stable in footings of rising prices and exchange rate alterations, comparatively

broad and really unfastened affecting immense motions of labour, capital and goods and services.

Harmonizing to the human development index, the UAE ranks 43 among the high homo

development group of states ( UNDP, 2000 ) .

In this paper we attempt to explicate the determiners of growing in the UAE with the

aim of foregrounding the schemes and policies that are likely to advance faster growing in

the hereafter. Indeed the survey of the determiners of growing has continued to be at the nucleus of

economic sciences because of its of import policy deductions ( see e.g. Barro, 1991, and Hahn and

Kim, 2000 ) . The allotment and efficient usage of resources, income distribution and chances

for sustainable growing are among the chief issues of involvement in growing theory. Both financial and

pecuniary policy design is frequently based on growing public presentation and chances. We find the oil

1 It should be remembered that the UAE is still significantly dependent on oil grosss in absolute footings.


monetary value index, the investing rate and human development as the most of import derivation

growing in the state. In add-on, unlike the instance in states with a diversified resource

base, natural resource ( oil ) copiousness is a strong drift for growing.

In the following subdivision, we discuss the public presentation of the economic system concentrating on the station

federation epoch, particularly the period 1975-1999 as dictated by informations handiness. In Section 3,

we use a growing accounting model to gauge the part of factor inputs to overall

GDP growing and analyse the findings in a regional context. A arrested development theoretical account of the

determiners of growing in the UAE is so specified and estimated in this subdivision. The consequences

of the theoretical account are besides discussed in a regional context. Section 4 gives a elaborate analysis of

the function of markets ( particularly the labour and capital markets ) in the UAE growing procedure.

Finally subdivision 5 concludes with some policy comments.