The Economic Complexity of the UAE: Diversification into Goods and Services


The UAE has achieved significant economic diversification over the past two decades, with non-oil goods exports growing 7.7% annually (2005-19) and services exports expanding by a factor of 3.5, driven primarily by transport, logistics, tourism, and stone/metals products. However, the current export matrix remains energy-intensive and exhibits relatively low economic complexity compared to aspirational peers, indicating limited accumulation of sophisticated productive know-how and suggesting constraints on future growth potential. This report applies economic complexity theory to identify a country-specific diversification roadmap, using density measures to assess feasibility based on the UAE’s existing capabilities and prioritizing opportunities with high complexity and growing global demand. Through this systematic sector identification process, we identify 63 products and 18 service industries organized into ten diversification themes: five in goods (food, metals, chemicals, plastics, and machinery) and five in services (ICT, financial services, business services, healthcare, and creative industries). Given the UAE’s relatively low Complexity Outlook Index, achieving further structural transformation will require active policies to accumulate productive capacities, execute well-targeted capability jumps, and strengthen state capacity to address market failures inherent in the self-discovery process.

A Growth Diagnostic of Kazakhstan

This Growth Diagnostic Report was generated as part of a research engagement between the Growth Lab at Harvard University and the Astana International Financial Centre (AIFC) between June 2021 and December 2022. The purpose of the engagement was to formulate evidence-based policy options to address critical issues facing the economy of Kazakhstan through innovative frameworks such as growth diagnostics and economic complexity. This report is accompanied by the Economic Complexity Report that applies findings from this report on economy-wide challenges to growth and diversification in order to formulate attractive and feasible opportunities for diversification.

Kazakhstan faces multifaceted challenges to sustainable and inclusive growth: macroeconomic uncertainty, an uneven economic playing field, and difficulties in acquiring productive capabilities, agglomerating them locally, and accessing export markets. Underlying Kazakhstan’s transformational growth in the last two decades—during which real GDP per capita multiplied by 2.5x—are two periods that underscore how Kazakhstan’s growth trajectory has been correlated with oil and gas dynamics. The early and mid-2000s characterized by the global commodity supercycle led to an expansion of the economy upwards of 8% annually, with a mild slowdown during the global financial crisis. In 2014, Kazakhstan’s growth slowed with the collapse of commodity prices, and alternative engines of growth have not been strong enough to fend against volatility since. These trends, along with growing uncertainty in the long-run demand of oil and gas, continue to highlight the limitations of relying on natural resources to drive development.

As in the experience of other major oil producers, diversification of Kazakhstan’s non-oil economy is a critical pathway to drive a new era of sustainable and inclusive growth and mitigate the impacts of commodity price shocks on the country’s economy. Kazakhstan’s growth trajectory demonstrates that the country has enough oil to suffer symptoms of Dutch disease, but not enough to position it as a reliable engine of growth in the future. Development of non-oil activities has been a policy objective of the government of Kazakhstan for some time, but previous efforts for target sectors have failed to generate sufficient exports and investments to produce alternative engines of growth. This report characterizes the relationship between growth, industrial policy, and the constraints to diversification in Kazakhstan. It utilizes the growth diagnostics framework to understand why efforts to diversify into non-oil tradables has been challenging. The report proposes a growth syndrome to explain the constraints preventing Kazakhstan from achieving productive diversification and sustainable growth.

This report is organized in six sections, including a brief introduction.

Related project: Sustainable and Inclusive Growth in Kazakhstan

The Economic Complexity of Kazakhstan: A Roadmap for Sustainable and Inclusive Growth

Since the end of the 1990s, Kazakhstan has relied on oil and gas as the main drivers of economic growth. While this has led to rapid development of the country, especially during years of high oil prices, it has also subjected the economy to more severe downturns during oil shocks, bouts of currency overvaluation, and procyclicality in growth and public spending.

Stronger economic diversification has the potential to drive a new era of sustainable growth by supporting new sources of value added and export revenue, creating new and better jobs, and making the economy more resistant to fluctuations in oil dynamics. However, repeated efforts to stimulate alternative, non-oil engines of growth have so far been inconclusive.

This report introduces a new framework to identify opportunities for economic diversification in Kazakhstan. This framework attempts to improve upon previous methods, notably by building country and region-specific challenges to the development of the non-oil economy directly into the framework to identify feasible and attractive opportunities. These challenges are presented in detail in the Growth Diagnostic of Kazakhstan and are summarized along three high-level constraints: (i) an uneven economic playing field dominated by government-related public and private-entities; (ii) difficulties in acquiring productive capabilities, agglomerating them locally, and accessing export markets; and (iii) ongoing macroeconomic factors lowering external competitiveness lower and making the economy less stable.

Our approach applies the economic complexity paradigm to identify what specific products and industries are most feasible for diversification, based on the existing productive capabilities demonstrated in the economy. We examine Kazakhstan’s economic complexity at the national but also subnational levels, highlighting the heterogeneity of export baskets across regions that makes an analysis of opportunities at the subnational level essential.

Related project: Sustainable and Inclusive Growth in Kazakhstan

Development in a Complex World: The Case of Ethiopia

This research compendium provides an explanation of Ethiopia’s fundamental economic challenge of slowing economic growth after an exceptional growth acceleration — a challenge that has been compounded by COVID-19, conflict, and climate change impacts. Ethiopia has experienced exceptional growth since the early 2000s but began to see a slowdown in the capacity of the economy to grow, export, and produce jobs since roughly 2015. This intensified a set of macroeconomic challenges, including high, volatile, and escalating inflation. This compendium identifies a path forward for more sustainable and inclusive growth that builds on the government’s Homegrown Economic Reform strategy. It includes growth diagnostics and economic complexity research as well as applications to unpack interacting macroeconomic distortions and inform diversification strategies. Drawing on lessons from past success in Ethiopia and new constraints, this compendium offers insights into what the Government of Ethiopia and the international community must do to unlock resilient, post-conflict economic recovery across Ethiopia.

The research across the chapters of this compendium was developed during the Growth Lab’s research project in Ethiopia from 2019 to 2022, supported through a grant by the United States Agency of International Development (USAID). This research effort, which was at times conducted in close collaboration with government and non-government researchers in Ethiopia, pushed the boundaries of Growth Lab research. The project team worked to understand to intensive shocks faced by the country and enable local capability building in the context of limited government resources in a very low-income country. Given the value of this learning, this compendium not only discusses challenges and opportunities in Ethiopia in significant detail but also describes how various tools of diagnostic work and economic strategy-building were used in practice. As such, it aims to serve as a teaching resource for how economic tools can be applied to unique development contexts. The compendium reveals lessons for Ethiopian policymakers regarding the country’s development path as well as numerous lessons that the development community and development practitioners can learn from Ethiopia.

What Can the Millions of Random Treatments in Nonexperimental Data Reveal About Causes?

We propose a new method to estimate causal effects from nonexperimental data. Each pair of sample units is first associated with a stochastic ‘treatment’—differences in factors between units—and an effect—a resultant outcome difference. It is then proposed that all pairs can be combined to provide more accurate estimates of causal effects in nonexperimental data, provided a statistical model relating combinatorial properties of treatments to the accuracy and unbiasedness of their effects. The article introduces one such model and a Bayesian approach to combine the O(n2) pairwise observations typically available in nonexperimental data. This also leads to an interpretation of nonexperimental datasets as incomplete, or noisy, versions of ideal factorial experimental designs. This approach to causal effect estimation has several advantages: (1) it expands the number of observations, converting thousands of individuals into millions of observational treatments; (2) starting with treatments closest to the experimental ideal, it identifies noncausal variables that can be ignored in the future, making estimation easier in each subsequent iteration while departing minimally from experiment-like conditions; (3) it recovers individual causal effects in heterogeneous populations. We evaluate the method in simulations and the National Supported Work (NSW) program, an intensively studied program whose effects are known from randomized field experiments. We demonstrate that the proposed approach recovers causal effects in common NSW samples, as well as in arbitrary subpopulations and an order-of-magnitude larger supersample with the entire national program data, outperforming Statistical, Econometrics and Machine Learning estimators in all cases. As a tool, the approach also allows researchers to represent and visualize possible causes, and heterogeneous subpopulations, in their samples.

Yet it Endures: The Persistence of Original Sin

Notwithstanding announcements of progress, “international original sin” (the denomination of external debt in foreign currency) remains a persistent phenomenon in emerging markets. Although some middle-income countries have succeeded in developing markets in local-currency sovereign debt and attracting foreign investors, they continue to hedge their currency exposures through transactions with local pension funds and other resident investors. The result is to shift the locus of currency mismatches within emerging economies but not to eliminate them. Other countries have limited original sin by limiting external borrowing, passing up valuable investment opportunities in pursuit of stability. We document these trends, analyzing regional and global aggregates and national case studies. Our conclusion is that there remains a case for an international initiative to address currency risk in low- and middle-income economies so they can more fully exploit economic development opportunities.

Green Growth Opportunities

Picture yourself as finance minister of a developing economy. An eager environmentalist tries to convince you of the moral imperative of cutting your country’s greenhouse gas emissions. You soon become bored because you’ve heard it all before, and your mind moves to more pressing matters. Your country is full of problems, from economic instability and inflation to challenges funding public services. Reducing emissions is not a priority.

Even if you were to succeed, your impact on the climate would be minuscule. Countries as populous as Pakistan, Nigeria, and Egypt each represent less than 1 percent of the world‘s emissions. Your country’s emissions—even cumulative since the industrial revolution—are infinitesimally small. Eliminating them all would have no material impact on the climate: you would have incurred costs and forgone opportunities to deliver economic prosperity with little to show for it.

Yet it would be a grave mistake not to consider climate change as an important aspect of your job. Change is sweeping across the global economy as countries recognize that the world must slash emissions to prevent a climate catastrophe. Decarbonization will reduce demand for dirty goods and services and increase demand for those that are cleaner and greener. The question is not what you can do to reduce your country’s emissions but how you can supercharge your country’s development by breaking into fast-growing industries that will help the world reduce its emissions and reach net zero.

Your country‘s history has been fundamentally shaped by the development of the few products it is able to make at home and sell abroad. Successful economies in east Asia and eastern Europe have sustained decades of high growth by upgrading their areas of comparative advantage, from garments to electronics to machinery and chemicals. They did not remain stuck in industries bequeathed by the past. If your country is to create jobs that pay higher wages, it will have to find new industries that can grow and export competitively even with higher wages.

Pessimists say that opportunities may have been there in the past for countries like Japan, Korea, or China, but those paths to development are now closed. Decarbonization will, however, create new opportunities—especially for those that move fast. The paths that are opening up have not been trod by many predecessors. Some are still virgin. Decarbonization will require significant greenfield investments, and plants will have to find new places to locate. This could be a great opportunity for your country, but to assess it, you must understand the changing landscape.

We do not know what technologies will power the low-carbon global economy or what materials and manufacturing capabilities they will need—nor what regulatory regimes the world will adopt, let alone what kind of cooperation or conflict will characterize relations between the largest emitters. These uncertainties will be resolved by those countries that play an active role and master the capabilities that will underpin their future comparative advantage. Keep in mind these six themes as you explore and exploit the opportunities and threats.

A Simple Theory of Economic Development at the Extensive Industry Margin

We revisit the well-known fact that richer countries tend to produce a larger variety of goods and analyze economic development through (export) diversifcation. We show that countries are more likely to enter ‘nearby’ industries, i.e., industries that require fewer new occupations. To rationalize this finding, we develop a small open economy (SOE) model of economic development at the extensive industry margin. In our model, industries differ in their input requirements of non-tradeable occupations or tasks. The SOE grows if profit maximizing frms decide to enter new, more advanced industries, which requires training workers in all occupations that are new to the economy. As a consequence, the SOE is more likely to enter nearby industries in line with our motivating fact. We provide indirect evidence in support of our main mechanism and then discuss implications: We show that there may be multiple equilibria along the development path, with some equilibria leading on a pathway to prosperity while others resulting in an income trap, and discuss implications for industrial policy. We finally show that the rise of China has a non-monotonic effect on the growth prospects of other developing countries, and provide suggestive evidence for this theoretical prediction.

What Will It Take for Jordan to Grow?

This report aims to answer the critical but difficult question: “What will it take for Jordan to grow?” Though Jordan has numerous active growth and reform strategies in place, they do not clearly answer this fundamental question. The Jordanian economy has experienced more than a decade of slow growth. Per capita income today is lower than it was prior to the Global Financial Crisis as Jordan has experienced a refugee-driven population increase. Jordan’s comparative advantages have narrowed over time as external shocks and responses to these shocks have changed the productive structure of Jordan’s economy. This was a problem well before the country faced the COVID-19 pandemic. The Jordanian economy has lost productivity, market access, and, critically, the ability to afford high levels of imports as a share of GDP. Significant efforts toward fiscal consolidation have further constrained aggregate demand, which has slowed non-tradable activity and the ability of the economy to create jobs. Labor market outcomes have worsened over time and are especially bad for women and youth. Looking ahead, this report identifies clear and significant opportunities for Jordan to strengthen new engines of export growth that would enable better overall job creation and resilience, even amidst the continued unpredictability of the pandemic. This report argues that there is need for a paradigm shift in Jordan’s growth strategy to focus more direct attention and resources on activating “agents of change” to accelerate the emergence of key growth opportunities, and that there are novel roles that donor countries can play in support of this.

The Economic Complexity of Namibia: A Roadmap for Productive Diversification

After a large growth acceleration within the context of the commodity super cycle (2000-2015), Namibia has been grappling with three interrelated challenges: economic growth, fiscal sustainability, and inclusion. Accelerating technological progress and enhancing Namibia’s knowhow agglomeration is crucial to the process of fostering new engines of growth that will deliver progress across the three targets. Using net exports data at the four-digit level, we estimate the economic complexity of Namibia – a measure of knowhow agglomeration – vis-à-vis its peers. Our results suggest that Namibia’s economy is relatively less complex and attractive opportunities to diversify tend to be more distant. Based on economic complexity metrics, we define a place-specific path for productive diversification, identifying industries with high potential and providing inputs – related to their feasibility and attractiveness in Namibia – for further prioritization. Namibia’s path to structural transformation will likely be steeper than for most peers, calling for a more active policy stance geared towards progressive accumulation of productive capacities, well-targeted “long jumps”, and strengthening state capacity to sort out market failures associated with the process of self-discovery.