ECONOMIC DIVERSIFICATION OBSTACLES IN RESOURCE-DEPENDENT STATES THROUGH THE LENS OF RESOURCE CURSE THEORY: OMAN AS A CASE STUDY

Abstract

Rationally, it would be expected that the discovery of substantial and lucrative natural resources would provide a pre-industrial state with the opportunity to achieve industrial take-off. However, resource curse theory has challenged this assumption. Instead, oil-dependent states are not able to diversify their economies away from their reliance on natural resource revenues. The Sultanate of Oman has proved to be no exception. The discovery of oil in Oman in 1962 provided its government with the means to establish a massive socio-economic development programme with the aim to eventually reduce the country’s dependency on oil. Decades later, oil export revenues still represent more than 80% of government revenues. The main objective of this research is to try to understand the root cause of Oman’s inability to create a diversified economy, despite the fact that it was among the first countries in the region to adopt an economic diversification strategy. To explore the main reasons behind the unsuccessful economic diversification attempts in Oman, this study analyses in-depth the four aspects of the ‘resource curse’ identified in the literature: economic factors; human resource development; institutional quality; and political/social factors. The thesis is based on a single case study, that of Oman, using two methods of data collection: semi-structured interviews and focus group discussions. The participants’ insights are triangulated with official documents and reports from international organisations. The analysis demonstrates that studying each of the four aspects of the resource curse separately does not provide sufficient explanation for the failure of diversification. As a result, this thesis argues that the interaction of these four factors provides a more comprehensive understanding of the phenomenon. Furthermore, the analysis highlights that economic factors and human resource development are negatively affected by the institutional quality and the political/social factors.