Economic diversification in Saudi Arabia: Myth or reality?

Abstract

Economic diversification is important for building sustainable economic growth. Thus, an economy that is highly dependent on income from a natural resource is in danger of instability or even collapse if the price of such commodity decreases in the global market. Additionally, economic diversification contributes positively to creating jobs, fighting corruption, and improving the institutional quality of countries. The Saudi government has issued 10 development plans since 1970, each covering five years, and economic diversification is a main objective of all these plans. This paper examines the government's efforts to diversify the economy using four variables: oil share of gross domestic product (GDP), share of private sector in GDP, oil exports as a percentage of the country's exports, and oil revenues as a percentage of total revenues. The current analysis covers nine development plans from 1970 through 2013. The analysis concludes that, after more than 40 years of development plans aiming to diversify the Saudi economy, oil is still the main engine driving the economy. The Saudi government needs to fully consider economic diversification as a tool for better governance.