ABSTRACT
Saudi Arabia is the largest and most populous of the Gulf Cooperation Council (GCC) countries. Promoting foreign investments will be key in supporting the diversification goals of the Saudi economy by providing needed funds, helping the transfer of knowledge and technology, and creating jobs for Saudis. The Saudi economy must be sufficiently diversified to face the various economic challenges created by its considerable dependence on hydrocarbons. As a result of significant dependency on hydrocarbons and insufficient diversity in the Saudi economy, it is susceptible to adverse shocks through at least three channels. These are macroeconomic volatility, exchange rate overvaluation and underdeveloped institutions. There is a direct link between diversification and productivity. Natural resource dependency has the potential of creating special economic enclaves and concentrated markets, stifling innovation and reducing economic productivity. To ensure robust economic growth, it is imperative for Saudi Arabia to pursue an open trade policy and develop resiliency to shocks through a policy of competitive economic diversification.
