Does economic diversification affect GDP growth asymmetrically in GCC countries? Panel PMG–NARDL evidence

Abstract

This paper investigates whether economic diversification affects GDP growth symmetrically or asymmetrically in GCC countries over the period 2000–2022. Economic diversification is measured using a Composite Economic Diversification Index (CEDIX) based on export, revenue, and sectoral concentration measures. The study uses a pooled mean group nonlinear autoregressive distributed lag (PMG–NARDL) model following tests for cross-sectional dependence, mixed orders of integration, and panel cointegration. The results show a stable long-run relationship between GDP growth, economic diversification, investment, labor force participation, and oil prices. More importantly, the results show a strong long-run asymmetry: diversification gains have a positive effect on long-run GDP growth, while diversification setbacks have a greater negative effect, thereby suggesting a reversal penalty. With respect to the control variables, oil prices are significant in the long run, while investment and labor force participation are more relevant to short-run dynamics. Short-run diversification effects are weaker and provide little evidence of asymmetric adjustment. Overall, the results suggest that the growth advantages of diversification take time to materialize through cumulative structural change rather than immediate short-run responses. The findings stress the importance of continuing diversification efforts to enhance long-run growth performance in GCC economies.