Trade and diversification : the case of Saudi Arabia
This study sets out to investigate the causal relationship between concentration and exports in the Saudi economy, to explain the pattern of diversification over time in relation to planning periods, to examine the effectiveness of the diversification policy in achieving growth, and to consider the implications of the GCC groupings on the diversification argument. In the course of this investigation, the theoretical foundations of trade policy and economic integration are discussed and the economic features of Saudi Arabia and the GCC countries. The Saudi Government has sought to diversify the economy, and these efforts have been reinforced by greater regional integration with the GCC member countries. Yet, attempts at diversification do not appear to have produced substantial effects on the pattern of production and trade. The study employed the Gini-Hirschman coefficient to measure concentration and has related values of these coefficients to measures of fluctuations in total earnings. In addition, the study applied a proportionate contribution statistics model, which is based on the Markowitz-type model, to investigate more directly the extent to which instability in total export earnings of Saudi Arabia is related to concentration. For this purpose, the work focused on Saudi GDP, exports and markets for a period of 26 years from 1970 to 1994. The general conclusion of this study was that there is ample theoretical and practical justification for diversification policies in terms of commodity and geographic markets. When the concentration and instability measures were applied to the Saudi economy, the following were indicated: (a) while the thrust of policy is based on a widening of the composition of export products and market zones to achieve a fall in export instability, it is found instead that the level of instability has been falling in the more recent part when Gini-Hirschman coefficients indicated increasing levels of commodity concentration and decreasing levels of geographic concentration; (b) according to the results from the proportionate contribution statistic, Saudi oil exports and traditional markets contributed disproportionately to total earning instability; and, (c) the GCC market is more stable than other markets, although there are several impediments that delayed the establishment of customs union among member countries.