Monday, January 20, 2020

Growth and Transformation of Mature Economies with special reference to GCC countries

All the developed countries today passed through different stages of development. Initially, the contribution of the agricultural sector dominates. For example, at the early stage of development, the contribution of the agricultural sector is high followed by the manufacturing sector which may be little more than the service sector.

As the economy matures and grows, the share of the agricultural sector decreases and the share of the manufacturing sector to GDP increases and also the share of the service sector increases. For the developed countries, the share of the service sector to GDP is the highest followed by the share of the manufacturing sector, and the agricultural sector has the lowest share to GDP. Often for many developed countries manufacturing sector starts to shrink and the service sector becomes more and more dominant. Such a phenomenon is known as “deindustrialization”.

For GCC countries, the manufacturing sector did not grow much as it should have been during the growth and transformation. Often in a share of GDP calculations in GCC countries, the oil sector added with the industrial sector. As a result, the industrial sector exhibits higher share but our focus is on the production of “high valued manufactured products”, such as locally designed cars, planes, smartphones, computers, and high valued high tech products. Now in GCC countries, the service sector will start to dominate the manufacturing sector. The solution will be to expand the size of the manufacturing sector in the GCC countries now and start to produce “high valued manufactured products”, part of which can be exported and part of which will be import substitutes for domestic consumption.

In both ways, trade deficits will decrease, the trade surplus will increase and the twin forces will improve budget surplus. In addition, the inquisitive minded Bahrainis and other GCC nationals will find high paying creative jobs which they will like and enjoy. A win-win situation that will take GCC countries to another heights of high growth, higher per capita income, a higher standard of living and prosperity.

By Dr. Mohammad Selim, Department of Economics and Finance, College of Business Administration, University of Bahrain

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