Appendix I. Export Indices
Appendix II. Regression Analysis
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Prepared by a team led by Vahram Stepanyan, comprising Botir Baltabaev, Anastasia Guscina, Mohammed Zaher, Ling Zhu, and Tucker Stone, under the supervision of Bikas Joshi (all MCD). Diana Kargbo-Sical provided editorial support.
In this paper “hydrocarbon” is used interchangeably with “oil”.
Recently, countries have been implementing policies to increase non-oil fiscal revenues. In particular, Saudi Arabia and UAE introduced a value-added tax in 2018.
These indices are based on WEF’s and OECD’s quantitative and qualitative assessment of the trade and investment environment and should be interpreted with caution due to a limited number of respondents, limited geographical coverage, and standardized assumptions on business constraints, and information availability. They may also not reflect more recent important structural transformations that are ongoing in the GCC countries.
In 2016, Bahrain relaxed its foreign ownership restriction to allow full foreign ownership of business except for a few sectors, and the UAE recently announced major relaxation of foreign ownership restrictions.
Casoria (2017) finds that notwithstanding the wide arsenal of legal tools to curb possible anticompetitive practices, in all GCC countries, the application of competition laws and role and powers of the competition authorities (if they exist) is still at a rudimentary stage of development.
The GCC states are not signatories to the WTO Government Procurement Code.
In 2016, Kuwait announced that nearly 60 percent of public sector companies are earmarked for privatization and allowed the private sector to acquire shares of up to $9 billion in public sector firms, such as Kuwait Petroleum Corporation. The UAE announced plans for privatization of much of the UAE services and Oman declared that many state-owned energy companies are slated for privatization. Saudi Arabia published a privatization program in 2018 and has issued a draft private sector participation law for public comment.
Given the policy aim is to boost non-oil exports, the analysis is based on non-commodity exporters. The details of the estimations and the empirical model are discussed in Appendix II.
A regression of non-oil exports on a sample of all countries (commodity and non-commodity exporters) that includes oil as a determinant suggests that oil exports do have a negative impact on non-oil exports. However, the re-estimated non-oil export gaps based on this specification are not materially different from those in the baseline.
These gaps were also estimated with coefficients based on alternative regression methods and samples. The results are broadly in line with those in the baseline estimation. Due to lack of data granularity, we do not differentiate between oil and non-oil FDI potentials in the GCC.
Specification with FDI inflows over GDP was also considered, but no significant effect was found.