by Athanasia Kalaitzi, Samer Kherfi, Sahel Al-Rousan and Marina-Selini Katsaiti
The relationship between exports and economic growth is a subject of ongoing debate among economists, and is sometimes a controversial policy issue. Historically, exports have been used as a policy tool to accelerate economic growth and, for some countries, this has been done with great success. However, not all exports equally contribute to economic growth. In certain cases, exports could prove harmful, particularly resource-based ones, which have been associated with lower growth.
Oil exports represent one such example. Subject to excessive price fluctuations, oil exports often exhibit great vulnerability in earnings and foster uncertainty in the economy, placing an obvious threat to growth. Despite a high dependency on oil exports, the UAE economy has long exhibited significant rates of economic growth, unlike other economies of comparable economic structure. So how has the country been able to sustain high rates of economic growth despite this significant reliance on oil exports?
In our Middle East Centre collaboration project with the American University of Sharjah, we study the export diversification process in the UAE for the period 1981-2017. The underlying economic activity is reflected in the change in export composition, with non-primary exports share increasing from 15.1% in 1981 to 72.4% in 2017, and the number of exported goods rising from 158 in 1991 to 4260 in 2016, establishing the UAE as a diversification leader in the GCC. We examine whether such economic course would indeed foster economic growth.
In theory, this change in the export structure decreases the variability of export earnings, and reduces uncertainty in the economy, increasing investment and promoting technological innovation. Moreover, lower fluctuation of export earnings encourages the imports of services and capital goods, elements essential to productivity and economic growth. But is this theory valid in the case of the UAE?
Within the Emirati context, previous research has shown merchandise exports to have contributed positively to the country’s economic growth in the short run. However, there is evidence that some sub-categories of merchandise exports, such as primary exports and especially fuel-mining exports, do not cause economic growth neither in the short nor in the long-run. Inasmuch as aggregate measures may mask different causal effects across export categories, further disaggregation may point to those categories whose expansion would be most likely to foster long-run economic growth. Additionally, building on the received evidence of no causality between primary exports and economic growth in the UAE, the focus of this project is specifically on non-primary exports and their components.
So far, our results show that non-primary exports contribute to the UAE’s economic growth in the short-run. However, similar evidence regarding the long-run has not yet been established. In our next step, we aim to identify the sub-category of non-primary exports that causes long-run economic growth in the UAE, through the disaggregation of non-primary exports. Examining the country’s export profile in detail can help in the design of relevant policies and the maintenance of more diversified export bases. It could also help decrease the country’s vulnerability to changes in global demand.
So which exported goods promote long-run economic growth? Using various indices and econometric methods, this project seeks to answer that question for the UAE.
This blog post introduces the LSE Academic Collaboration with Arab Universities project, in collaboration with the American University of Sharjah, Export Composition and Economic Growth in the UAE.
 In particular, during the period 1981–2017, the UAE has grown faster than the world economy (with a growth rate of 3.4% comparing with the world growth rate of 2.9%), while its growth rate exceeds that of high income countries (2.4%)(World Development Indicators, World Bank).
 Export diversification refers to the change in a country’s export basket, moving from traditional to non-traditional exports. In the case of UAE, a shift from primary to non-primary exports.
 The use of mathematical equations and theories to model the economy.