Economic Stability in the GCC Countries

About the ProjectThe project explores alternative methods of measuring economic diversification and investigating its associated impacts on the Saudi Arabian economy and other GCC countries. By utilizing a financial portfolio framework reconciled with economic growth theory, the economy is viewed as a portfolio of economic sectors, each contributing to the overall output growth. Results demonstrated that diversification policies have been effective, as the economy moves towards higher growth with lower instability.Key PointsEvidence confirms that there is a positive correlation between the economic growth rate and its volatility/risk in the Gulf Cooperation Council (GCC) region. In other words, there is a trade-off between the benefits of oil and gas activity and the volatility resulting from unpredictable commodity price swings in such resource dependent economies. Our analysis uses a financial portfolio framework approach (and more specifically an efficient frontier analysis), treating economic sectors as individual investments. We calculate a relative risk measure termed the ‘beta coefficient’ and assemble a portfolio of sectors with varying weights to find the efficient frontier. If the beta of the portfolio representing the economy is above global average, the economy will generally grow faster than the global average but with greater volatility – the upturns will be higher and the downturns deeper. We aim to shed light on diversification policy from this novel, if not yet widely accepted, perspective. The GCC economies exhibit ‘high beta,’ particularly Qatar. Saudi Arabia sits in the middle of the group, but above the global average, while Oman has the lowest coefficient of the group.Saudi Arabia’s National Transformation Plan to 2020 and economic Vision 2030 envisage an economy that is still invested in oil and gas activity at 45 percent of total output. While diversification policies in these plans promote economic growth, it still leaves the economy exposed to the volatility of energy markets. In comparison, the optimal mix of economic sectors could increase the growth rate by more than 1 percent annually and nearly halve the expected volatility (to less than 60 percent of growth rate).Saudi Arabia’s historical economic policies were effective in achieving some diversification. However, their benefits could be increased by policies that balance productive efficiency with diversification of economic activity. The difference between policy-optimized portfolio and non-constrained optimization can be used to estimate the size of the fiscal stabilization fund needed to protect the economy from stop/go risks to diversification objectives.

关于项目本项研究旨在探讨衡量经济多元化之替代方法，并探究其对沙特阿拉伯经济及其他海湾合作委员会（GCC）国家经济影响的相关研究。通过采用与经济增长理论相协调的金融投资组合框架，将经济视为由各个经济部门组成的投资组合，每个部门都对整体产出增长做出贡献。研究结果证实，多元化政策的效果显著，因为经济正朝着更高增长和更低不稳定性的方向发展。关键要点证据表明，在海湾合作委员会（GCC）地区，经济增长率与其波动性/风险之间存在正相关关系。换言之，在石油和天然气活动带来的收益与资源依赖型经济体中不可预测的商品价格波动引起的波动性之间存在着权衡。本研究采用金融投资组合框架方法（尤其是效率前沿分析方法），将经济部门视为单独的投资。我们计算了一个称为“贝塔系数”的相对风险度量，并构建了具有不同权重的部门投资组合以寻找效率前沿。如果代表经济的投资组合的贝塔值高于全球平均水平，则该经济体的经济增长速度通常快于全球平均水平，但波动性更大——上升幅度更高，下降幅度更深。我们旨在从这一新颖的、尽管尚未被广泛接受的视角中揭示多元化政策。GCC经济体表现出‘高贝塔值’，尤其是卡塔尔。沙特阿拉伯位于该组中间，但高于全球平均水平，而阿曼则是该组中系数最低的国家。沙特阿拉伯的《国家转型计划（2020）》和《2030年经济愿景》预计，在总产出中，经济仍将对石油和天然气活动投资45%。尽管这些计划中的多元化政策促进了经济增长，但经济仍面临能源市场波动的风险。相比之下，经济部门的最优组合可以提高年增长率超过1%，并将预期波动性几乎减半（降至增长率的60%以下）。沙特阿拉伯历史上的经济政策在实现某些多元化方面是有效的。然而，通过平衡生产效率和多元化经济活动的政策，可以进一步提高其效益。政策优化投资组合与无约束优化之间的差异可用于估算为保护经济免受多元化目标中断/重启风险所需的财政稳定基金规模。