Understanding Economic Diversification in the UAE Research Paper

Understanding Economic Diversification in the UAE - Research Paper Example Understanding Economic Diversification in the UAE This paper will explore the economy of UAE by discussing strength and weakness in a way that facilitates the understanding of the topic in the context of Abu Dhabi. Various issues related to labor, free zone and stock market are discussed in way that depicts their contribution to growth of non-oil sectors in Abu Dhabi. In this section, the paper seeks to identify ways through which labor, free zone and stock markets are supporting the diversification from the oil sector. Therefore, this gives an illustration of the ways in which Abu Dhabi is reducing the dependence on oil. The paper concludes with a summary and recommendations of the issues that will be explored. Understanding The UAE economy The economy of United Arab Emirates has been ranked the thirty-fifth freest economy in the 2012 index with a freedom score of 6.9, and it has experienced a growth of 1.5 using last year as the base year. This growth has been attributed to improvements in the property rights, monetary freedom and labor freedom. Moreover, the economy is ranked fourth in a list of seventeen countries in Africa and Middle East due to its overall score that is higher than the averages on various regions in the world. Registration of the best twenty enhancements in 2012 index has made a substantial contribution to improving economic independence. The business environments and conditions boosting investments have contributed to restructuring of the economic systems; thereby facilitating the establishment of pulsating private sector. Furthermore, sustenance of momentum growth has been facilitated by the open trade regime with cost controls. Therefore, the UAE has been focusing on being a regi onal financial hub with a banking sector dealing with the financial problems moderately well. However, there are deficiencies in legal systems and investment framework, which are restraining the entire economic freedom of UAE. There are judicial systems that intimidate foreign investors by increasing their vulnerability to political influence. However, corruption is deteriorating compared to other economies in the region. Abu Dhabi makes significant contribution to the oil yields resulting in a principal role in political and economic decision-making (The government of Abu Dhabi, 2008). Of late, the focus of the government has shifted towards alternate and non-oil resources, a process termed as diversification. This paper purports to discuss the concept of economic diversification, growth of the oil and non-oil sectors over the last ten years, contribution of labor, free zone and stock market to the growth of the non-oil sector in the UAE. Concept of Economic Diversification The con cept of economic diversification is associated with the process of risk reduction through division of the assets among various securities or forms of investment (Fridson & Alvarez, 2002). Therefore, diversification of income sources based on different and unrelated exposures to risk increases the chances of being compensated to the incidence of potential loss. Moreover, this is used in selection of a portfolio, fields of financial economics. Understanding this concept clarifies the reason behind government expenditure in UAE along with