Investigating the Impact of Oil Rents, Foreign Direct Investment and Exports on Productive Capacity: Concentrating on Spatial Analysis for the Gulf Cooperation Council Countries
Investigating the Impact of Oil Rents, Foreign Direct Investment and Exports on Productive Capacity: Concentrating on Spatial Analysis for the Gulf Cooperation Council Countries

Summary/Abstract: Oil rents play a significant role for oil-abundant countries; therefore, most oil-abundant countries depend on oil sectors. However, if gains from oil rents are not invested in productive sectors, it may adversely affect long-term sustainable growth. As discussed in the relevant literature in the scope of the resource curse hypothesis or Dutch disease, dependence on natural resources may crowd out productive investment, resulting in decelerating economic growth (GDP). However, crucial policies emerge that suggest that oil rents contribute to or dampen productivity in oil-rich countries. It is observed that few studies have considered the role of oil rents in productive capacity, which is crucial for sustainable economic development. Therefore, the study attempts to research investigate the impacts of oil rents in productive capacity for a panel sample of the GCC countries from 2000 to 2021 by adopting spatial panel econometric techniques: the spatial autoregression (SAR) model, the spatial error model (SEM) and the spatial Durbin model (SDM). The empirical findings point out that despite oil rents having a negative impact on productive capacity in the GCC countries, there is no spatial effect on productive capacity. This result indicates that change in oil rents in any member of the GCC does not spread to other members. Moreover, inward foreign direct investment has positive local and spatial impacts on productive capacity. Although merchandise exports have a positive spatial impact on productive capacity, there are no local effects. Finally, economic growth has negative local and spatial impacts on productive capacity. In line with empirical findings, some policy insights can be offered, namely that policymakers in the GCC countries should direct oil rents to productive investments to capture long-run sustainable development. Moreover, policymakers should encourage foreign direct investment in productive sectors.

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