The Falling Productivity in West Asian Arab Countries Since the 1980s: Causes, Consequences, and Cures

This article analyzes the macro trends in real per capita GDP and productivity in 12 West Asian Arab countries, distinguishing between the oil-rich GCC economies and the non-GCC West Asian Arab economies. We use a panel data econometric analysis to understand the trade-off between productivity and job creation in the region. Further, we examine the sources of aggregate labour productivity growth in terms of a) structural change and within-industry productivity improvements and b) capital deepening and total factor productivity growth. Although the nature of productivity problems in the two groups of countries – the GCC and non-GCC West Asian Arab economies – differ, the challenges in addressing those are substantial for both. Developing a vibrant private sector that can foster productivity growth is a common challenge for both groups of countries. The inability to embrace innovation and technology and to translate investment in capital to productivity are important impediments to boosting productivity growth. Focusing on technology and innovation, continuing the efforts to diversify away from oil, and upskilling the local workforce are essential to creating more productive jobs for the native population.