Emirati Journal of Business, Economics, & Social Studies

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Vol. 4 No. 2 (2025): Emirati Journal of Business, Economics and Social Studies

54 years of the United Arab Emirates: An Advanced Econometric Analysis of Economic Diversification and Productivity Dynamics

  • Rodrigo Bochner
Submitted
December 22, 2025
Published
2025-12-30

Abstract

This study presents a rigorous econometric examination of the relationship between economic diversification and total factor productivity (TFP) growth in the United Arab Emirates over the period 2000-2024. Employing an Autoregressive Distributed Lag (ARDL) bounds testing approach and Toda-Yamamoto causality framework, we establish robust evidence of a long-run cointegrating relationship between non-hydrocarbon GDP share and productivity dynamics. Our findings reveal that a one percentage point increase in non-oil sector contribution generates a 0.42% enhancement in TFP growth in the long run, with statistically significant transmission channels through capital deepening and human capital accumulation. The analysis incorporates structural break tests identifying 2008 and 2020 as critical junctures in the UAE’s diversification trajectory. Granger causality tests confirm bidirectional feedback between diversification and productivity, suggesting virtuous cycle dynamics. The estimated elasticity of substitution between hydrocarbon and non-hydrocarbon sectors (σ = 1.67) indicates strategic complementarity rather than displacement. These results support continued diversification while highlighting opportunities for enhanced policy coordination in innovation ecosystems and knowledge-intensive sectors.

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