Innovation and economic diversification indicators – a comparative analysis among GCC countries with a special focus on Sultanate of Oman

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Many empirical studies in developing economies suggest that economic diversification is indispensable for sustained economic growth. It is also suggested by studies that economic diversification of a country can be influenced by upgrading the capabilities of companies, scientists, regions which will empower them to innovate and create new products, processes and organizational structures.

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International Journal of Management (IJM) Volume 9, Issue 6, November–December 2018, pp.1-12, Article ID: IJM_09_06_001 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=9&IType=6 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication INNOVATION AND ECONOMIC DIVERSIFICATION INDICATORS – A COMPARATIVE ANALYSIS AMONG GCC COUNTRIES WITH A SPECIAL FOCUS ON SULTANATE OF OMAN Dr. Kabaly P Subramanian Assistant Professor, Arab Open University, Oman Branch Rengarajan, Lecturer, Faculty of Business Studies, Arab Open University, Oman Branch ABSTRACT Many empirical studies in developing economies suggest that economic diversification is indispensable for sustained economic growth. It is also suggested by studies that economic diversification of a country can be influenced by upgrading the capabilities of companies, scientists, regions which will empower them to innovate and create new products, processes and organizational structures. Hence, innovation and economic diversification are inter-related. It is observed that long run economic development is driven by creative processes. More diversified economy is capable of handling economic shocks or decline of a sector. Economies with a varied set of sectors leads to become more democratic, as different economic groups gain in creative, economic and political power. If the growth of an economy is merely driven by efficiency, not innovation, it leads to reduction of employment due to routines and replacement of humans by machines GCC countries are oil dependent economies working hard to diversify their economies. Sultanate of Oman is one among GCC countries working with same principle and approach. GCC countries have been investing heavily in infrastructure and human development in order to make their economic diversification and innovation strategies to get implemented better. Access to finance is one of the key areas that must be focused well in order to realize the economic diversification and innovation goals of an economy. This has been well perceived by GCC countries. Overall, GCC countries have been move ahead in economic diversification and innovation through its policies and prioritization, which economic indicators clearly vouch. In this context, this paper intends to investigate the status of Innovation and Economic diversification across GCC countries with a special focus on Sultanate of Oman Keyword: Innovation and economic diversification are inter-related. http://www.iaeme.com/IJM/index.asp 1 editor@iaeme.com
Innovation and Economic Diversification Indicators – A Comparative Analysis among Gcc Countries with a Special Focus on Sultanate of Oman Cite this Article: Dr. Kabaly P Subramanian and Rengarajan, Innovation and Economic Diversification Indicators – A Comparative Analysis among Gcc Countries with A Special Focus On Sultanate of Oman, International Journal of Management, 9 (6), 2018, pp. 1-12. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=6 1. INTRODUCTION Economic diversification is closely linked to innovation capabilities. Only through introduction of creative and innovative products and production systems, diversification is difficult to achieve. Therefore, it is imperative for nations to develop innovation ecosystems to achieve competitive and diversified economies. This will help Universities, Public and Private Institutions, companies and civil societies to develop deploy and disseminate new technologies. To realize the ambition of economic diversification, innovation needs to be given top priority in economic, social and technology policies across GCC countries including Sultanate of Oman. An International Monetary Fund (IMF) study on Economic Diversification in GCC observes greater diversification would help countries sail through the VUCA world (Volatile, Uncertain, Complex and Ambiguous) of Oil Market, help create more jobs in the private sector, increase productivity and sustainable growth and establishing a non-oil economy which is very much essential when oil revenues start to reduce. Thus, focus on non-oil sectors and improving the human capital to get absorbed in these sectors are key challenges for GCC countries. Their national priorities have always been intensive industrialization and developing abilities and skills of human resources which are essential for achieving sustainable economic growth and diversification and to practice innovation accordingly. 2. OBJECTIVES OF THIS STUDY Following are the objectives of this study: 1. To identify and analyze some of the determinants of innovation and economic diversification across GCC Countries and Sultanate of Oman 2. To highlight a few plans of government in implementing innovation and economic diversification in Sultanate of Oman. 3. To analyze certain macro-economic indicators that reflect innovation and economic diversification happening across GCC countries and to determine closeness of Sultanate of Oman to other GCC countries 3. LITERATURE REVIEW Hartmann et.al. (2013)1 presents that the major goal of economics is to understand and promote economic development to contribute to social welfare. They have also pointed out that innovation and welfare creation are achievable by focusing attention on the need for a better understanding of the mutual relation between human capabilities and systems of innovation (Johnson et al., 2003; Arocena and Sutz, 2005)2. Asheim (2015)3 points out that innovation capacity of a country comprises the competitiveness of companies and countries and represents a dynamic view on competition. He further states that a dynamic view on competition implies that the innovation capacity of a country and competitiveness can very well be promoted by national research and innovation policies prioritizing increased investments in education, research. Hartmann (2013)4 mentions that economic diversification has a variety of positive effects i.e. economic growth, systemic stability and a more even distribution of political power. He argues that economic diversification is bringing about various changes in an economy like positive economic http://www.iaeme.com/IJM/index.asp 2 editor@iaeme.com
Dr. Kabaly P Subramanian and Rengarajan growth rate, bringing systemic stability etc. It is evident that economic diversification must be the core objective of a fastest developing economy like Oman. Economy should not be viewed as merely dynamical processes. Situngkir (2004)5 states that economy is an open system which large variations of point of view should be put into account be it to produce in the microeconomic level of firms and industry and even larger macroeconomic horizon. Entrepreneurs are passionate about the products and services their businesses sell, but their efforts benefit the economy in other ways as well. Hornaday (1982)6 argues that entrepreneurship and innovation target at previously untapped opportunity to make substantial profits (either by lowering the costs of producing existing good/services or by creating brand new ways for people to satisfy their wants through new products) and then takes the initiative in bringing together the necessary factors of production to exploit this opportunity. Economic diversification of a nation will have to attract entrepreneurs who are looking for opportunities to explore something new in the market and make substantial profits. Amable (2016)7 presents that organizations should attain and maintain continuity of competitive advantage at an international level through improvements, innovations and upgrading on a continuous basis and this includes renewal of production methods, usage of technology, creation of new products and methods of production. Porter, M (1990)8, the competitive advantage of the nation cannot be achieved without having ability of its industry to innovate & promotion. Economic of countries should consider several of polices that enable firms to contribute in creating and sustaining the competitive advantage of nation Economic diversification policies of nations will have to help industries and companies to make necessary changes which are the outcomes of product and process innovation and reap the necessary benefits. Anderson et al., (2011)9 argues that the structural strategies played vital role gain competitive advantage of the nation’s companies that leads effectiveness in firms’ performance and that lead for growth. The effective structures can support the economy to get worthy results. 4. METHODOLOGY OF THE STUDY The study aims at presenting the innovation and economic diversification practices being adhered to across GCC Countries and presenting the effectiveness of those policies through economic indicators, date pertaining to such information been collected through internet sources. Secondary data been collected from published sources (websites) such as the global economy, World Bank database, trading economics etc. The techniques used for analyzing data include a) Descriptive Statistics b) Correlation Analysis c) Graphs d) Comparative Economy Analysis Since economic diversification must be substantiated, basic tools are used, and this study provides a big space for further study and analysis. 5. DETERMINANTS OF INNOVATION IN GCC COUNTRIES Innovation is essential for ensuring economic diversification of a nation. Economic growth is substantially achieved by nations through its diversified policies and procedures being adopted. Thus, innovation is the result of need for economic diversification and economic growth is substantially achieved through innovation favoured through economic http://www.iaeme.com/IJM/index.asp 3 editor@iaeme.com
Innovation and Economic Diversification Indicators – A Comparative Analysis among Gcc Countries with a Special Focus on Sultanate of Oman diversification policies. Some of the factors that are essential for promoting innovation and achieving economic diversification for Oman have been analyze here. 5.1. Single Sector dependency and economic growth Carlos et al., (2011)10 present that changes happening in global economy directly are affecting the performance of domestic economy, explaining the essence of economic diversification for achieving acceptable economic growth rate. Economic diversification is achieved through policies that promote entrepreneurship, privatization, globalization and industrialization policies being followed at the respective nation. No country wants to depend upon one sector since the growth rate achieved in that sector in that country is remarkable over the years. Since this is posing a big challenge for the nation in a way that a small undesirable change in that sector would produce adverse impact on its GDP. In GCC countries, oil and gas is a natural essential source of revenue and that forms the major part of their total revenue, GCC countries would like to move slowly from oil dependency to industry diversification through innovation and entrepreneurship. In the same context, the industrial and economic policies of Sultanate of Oman highlight clearly that the nation does not want to depend on one sector and wants to instigate economic diversification. It has been observed that through economic diversification and industrialization policies, GCC countries could achieve a substantial economic growth rate if they could diversify their economic concentration. The growth rate at which GCC economies are growing been presented below: Table 1 Economic Growth: the rate of change of real GDP in GCC countries over the periods 2000 – 2017 GCC Descriptive Statistics Bahrain Kuwait Oman Qatar Saudi Arabia UAE Average (% of change of real GDP over the periods 2000 – 2017) Mean 4.69 4.02 3.56 9.92 3.72 4.45 5.06 Standard Error 0.43 1.37 0.77 1.85 0.93 0.92 1.04 Median 4.34 3.28 4.47 7.18 3.88 4.44 4.60 Standard Deviation 1.82 5.80 3.26 7.65 3.93 3.88 4.39 Sample Variance 3.30 33.66 10.62 58.46 15.42 15.08 22.76 Kurtosis -0.92 0.49 -0.38 -0.74 -0.40 1.10 -0.14 Skewness 0.30 0.35 -0.34 0.75 0.09 -0.43 0.12 Range 6.31 24.40 12.00 24.57 14.06 16.09 16.24 Minimum 1.98 -7.08 -2.67 1.60 -2.82 -5.24 -2.37 Maximum 8.29 17.32 9.33 26.17 11.24 10.85 13.87 (Source: the global economy, 2018 & computed) The table.1 illustrates how GCC Countries have been progressing over the years. The average growth rate of GCC countries is very close to the average of GCC (5.06), which reflects countries move in the same direction and their industrialization and economic diversification have been clearly been addressed in their economic policies. Sultanate of Oman has also been progressing well in implementing innovations effectively and sustaining economic diversification (mean growth rate 3.56). Further to this, the correlation between economic growth achieved in Sultanate of Oman and average rate achieved in GCC countries is 0.991, which reflects Sultanate of Oman’s economy is growing at a rate comparable to the other GCC Countries. This illustrates that economic policies and procedures governing GCC http://www.iaeme.com/IJM/index.asp 4 editor@iaeme.com
Dr. Kabaly P Subramanian and Rengarajan Countries are all directed towards achieving sustainable economic growth rate. Despite, oil dependency predominantly prevailing in GCC countries, through economic diversification and innovation practices; they could achieve this growth rate, which clearly shows up their directions to achieve sustainability in the future. 5.2. Government Plans on reducing Oil Dependency in Sultanate of Oman (2016 – 2020 Plan) Reuters (2016)11 highlights the government’s policies of Sultanate of Oman concerning reducing oil dependency for the next 5 years have been summarized below: 1. Cut the oil industry's contribution to gross domestic product to 22% from 44%; the contribution of natural gas would drop to 2.4% from 3.6%. 2. Over 500 programmes and policies would seek to diversify the Omani economy into sectors such as manufacturing, mining, transport and tourism. Cumulative investment over the five years is expected to be OMR 41bn, against OMR 38bn envisaged in the previous five-year plan. 3. The plan is to significantly use public-private partnerships, with 52% of total investment to come from the private sector vs. 42% in the last plan. The plan assumes an average oil price of USD 45/ barrel in 2016, USD 55 in 2017 and 2018, and USD 60 in 2019 and 2020 (Reuters, 2016) The above plan makes it clear that the government of Sultanate of Oman is moving towards well - diversified and not depending on oil exports extensively. The Government policies and strategies rightly focus on having more manufacturing and service organizations for contributing well to achieve the sustainable growth and efficiency. The educational and training institutions play a key role in Sultanate of Oman in assuring the best possible knowledge transfer who is highly needed for achieving excellence in innovation and economic diversification. Number of educational and training institutions working in Sultanate of Oman is the evidence of country’s progress towards achieving their economic diversification priorities. 5.3. Human Development Focus across GCC Countries Human development is the core for achieving innovation, which would highly result in ensuring economic diversification. Innovation and economic diversification are feasible for achieving provided human development policies and practice are pursued in vigor in any country. Accordingly, the human development index data pertaining to GCC Countries been analyzed and presented here. The human development index has been calculated using four important indicators such as life expectancy at birth, mean years of schooling, expected years of schooling, and gross national income per capita. (The global economy, 2018)12 Table 2 Human Development Index of GCC countries over the period 2000 - 2017 GCC Descriptive Statistics Bahrain Kuwait Oman Qatar Saudi Arabia UAE Average Index (Index values ranging from 0- 1) Mean 0.82 0.81 0.78 0.85 0.82 0.83 0.82 Standard Error 0.01 0.00 0.01 0.00 0.01 0.01 0.01 Median 0.81 0.80 0.78 0.85 0.83 0.83 0.82 Mode 0.81 0.80 0.78 0.86 0.85 0.82 0.82 http://www.iaeme.com/IJM/index.asp 5 editor@iaeme.com
Innovation and Economic Diversification Indicators – A Comparative Analysis among Gcc Countries with a Special Focus on Sultanate of Oman Standard Deviation 0.02 0.01 0.04 0.01 0.04 0.02 0.02 Sample Variance 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Kurtosis 0.59 -0.74 0.14 6.74 0.42 -0.18 1.16 Skewness 0.00 0.02 -0.81 -2.45 -1.11 0.16 -0.70 Range 0.06 0.02 0.11 0.04 0.11 0.07 0.07 Minimum 0.78 0.80 0.71 0.81 0.74 0.80 0.77 Maximum 0.85 0.82 0.82 0.86 0.85 0.86 0.84 (Source: the global economy, 2018 & computed) The table 2 makes it clear that GCC countries are initiating all possible actions to develop human capital they have. Despite, there exists high percentage of expatriate workers working across sectors in GCC Countries, good focus is given for developing the knowledge and skills base of local population. GCC invests heavily on projects that promote knowledge and skills level of respective nationalities which in turn facilitate implementing economic diversification and remaining innovative. The mean value of human development index across GCC countries is very close to the GCC average value (0.82). It is evident here that achieving excellence in innovation and economic diversification for GCC countries is highly achievable since the required knowledge base has been predominantly present, which human development index rightly reveals. Thus, the Government of Oman has rightly recognized that innovation could be practiced well in a country provided respective country’s human development index has been strong enough. It is observed that GCC countries index ranges from 0.76 – 0.85, which is a very good sign for those countries to practice well economic diversification strategies and innovation. The correlation analysis on human development index showed 0.895 between Oman and UAE and 0.764 between Oman and Saudi Arabia, which reflects that Oman’s human development activities and strategies pursed produce results that are on par with results achieved through such strategies in other GCC countries. This states that human development has been a real focus for GCC Countries and countries have been making good progress in achieving a greater index which has been the major source of innovation and economic diversification. 5.4. National Innovation Strategies - The Research Council (TRC) & Tanfeedh in Sultanate of Oman The Research Council (TRC) in Sultanate of Oman is contributing a lot in promoting innovation among faculty members of universities and colleges, students and other individuals. In 2016, TRC was given the task of developing the National Innovation Strategy (NIS), in collaboration with various innovation institutions in the Sultanate. In the process, they have identified four main pillars to concentrate as core aspects of their strategy and each is being developed by a specialized team. The four pillars have been: (1) Human Capital Resources (2) Intellectual Property and Knowledge Transfer (3) Economic Diversification (4) Institutional and Social Integration. (TRC, 2018)13. It is clear from this initiative that Sultanate of Oman has been taking all possible steps to encourage business people, entrepreneurs and students to be innovative. This approach is highly welcomed by experts in economics, policy makers and the key decision-making officials in respective public and private organizations. The other mechanism through which economic diversification is planned to be achieved is Tanfeedh. Timesofoman (2017)14 reveals that percentage of initiatives coming from the National Program for Enhancing Economic Diversification (Tanfeedh) is about 30 per cent of the total initiatives that the team is working on. The rest of http://www.iaeme.com/IJM/index.asp 6 editor@iaeme.com
Dr. Kabaly P Subramanian and Rengarajan the projects and initiatives are coming from Sharaka Team affiliated to the Diwan of Royal Court. 5.5. Business Freedom – A Major Motivational Factor for practising Innovation and pursuing Economic Diversification Policies Heritage (2018)15 defines “business Freedom is an overall indicator of the efficiency of government regulation of business. The quantitative score is derived from an assortment of measurements of the difficulty of starting, operating, and closing a business.” Economies will have to be creative enough to encourage innovations to happen in those economies. One of the key determinants for innovations happening in those economies is the freedom to do business in those economies. Business people/entrepreneurs consider starting a new business or try to implement a novel idea in countries where freedom to business exists to the maximum extent possible. Business freedom largely refers to manageable regulatory provisions, which in turn provides a room for business freedom. The summary statistics of Business Freedom Index of GCC Countries have been presented as below: Table 3 Descriptive Statistics on Business Freedom Index of GCC Countries over the years 2000 - 2017 Descriptive Statistics Bahrain Kuwait Oman Qatar Saudi Arabia UAE GCC Average (0 – 100%) Mean 79.33 66.89 66.89 63.94 71.17 69.67 69.65 Standard Error 1.19 1.53 1.53 1.85 2.28 2.86 1.87 Median 80.00 68.00 68.00 64.00 70.00 70.00 70.00 Mode 85.00 70.00 70.00 55.00 70.00 85.00 72.50 Standard Deviation 5.03 6.50 6.50 7.87 9.65 12.15 7.95 Sample Variance 25.29 42.22 42.22 61.94 93.21 147.53 68.74 Kurtosis -0.68 2.36 2.36 -1.79 0.70 -0.51 0.41 Skewness -0.40 0.95 0.95 0.02 -0.22 -0.60 0.12 Range 16.00 27.00 27.00 21.00 37.00 37.00 27.50 Minimum 69.00 58.00 58.00 55.00 51.00 48.00 56.50 Maximum 85.00 85.00 85.00 76.00 88.00 85.00 84.00 (Source: the global economy, 2018 & computed) The table 3 highlights the business freedom index values of GCC Countries’ over the years 2000 – 2017 reflecting the results of adherence to their industrialization and globalization policies respectively. It illustrates that Bahrain and Saudi Arabia have been encouraging entrepreneurs intensively on achieving maximum entrepreneurship and other countries as well progressing well in achieving greater excellence in maximum entrepreneurship. (GCC average 69.65). This further explains that innovations are rightly happening across GCC industries as business freedom index in those respective countries are in the range of 71 – 79 (out of 100). The correlation existing between Sultanate of Oman’s Business Freedom Index and GCC Average over the years has been 0.856 reflecting Oman’s initiatives in achieving Maximum Innovation and Entrepreneurship has been positive and highly working on par with other GCC Countries. It is evident from the analysis that GCC Countries including Sultanate of Oman has been practising and promoting maximum entrepreneurship through helping entrepreneurs in commercializing well their innovations. http://www.iaeme.com/IJM/index.asp 7 editor@iaeme.com
Innovation and Economic Diversification Indicators – A Comparative Analysis among Gcc Countries with a Special Focus on Sultanate of Oman 6. SUPPORTING EVIDENCES FOR INNOVATION AND ECONOMIC DIVERSIFICATION APPROACHES BEING ADHERED TO ACROSS GCC COUNTRIES Innovation is highly encouraged in Oman since they are moving towards reducing oil dependency and focusing on manufacturing and service sector operations to boost its economy and to offer employment opportunities both in terms of jobs and starting new business etc. It is good to analyse some of the indicators that reveal the innovation being focused and implemented in Oman over the years 6.1. Value Added by Industry in GDP over the years across GCC Countries One of the key indicators to be watched out for the effective realization of innovative products and processes in an economy is the value of industry added to GDP. The value of industry added to GDP shows the contribution of industries in country’s GDP, reflecting the result of innovation and economic diversification practices being adopted. A country could achieve a higher rate of value addition in GDP if diversification and innovations are happening appropriately in that respective country. A growth in industry valued added is the result of variety of innovative processes and products. Figure 1.reflecting the % of Industry Value Added in GDP of respective GCC Countries (Source: the global economy, 2018) The Figure 1 makes it clear that Sultanate of Oman is one among the GCC countries highly encouraging industrialization and innovation in businesses. The industry value added in GDP is showing the progress that each of the GCC country is making in industrializing their economy. A clear look at the percentages of industry value added to GDP reflects that all GCC countries have been progressing in achieving their industrialization and slowly diversifying from Oil dependency to industrialization. This progress reflects that countries would like to progress and achieve sustainable growth in industrialization. Innovation and economic diversification policies and strategies of these countries have been the source for making progress in this direction. The above makes it clear that like other GCC countries, the economy of Sultanate of Oman is moving rightly into privatization and industrialization and highly encouraging industrialists and entrepreneurs to explore the business opportunities in Oman. http://www.iaeme.com/IJM/index.asp 8 editor@iaeme.com
Dr. Kabaly P Subramanian and Rengarajan 6.2. Banks Credit to the Private Sector as percent (%) of GDP – Financing Innovation and Economic Diversification Banks extend loans to private sector to fund their investment requirements. Private sector organizations get loans from banks for meeting out their various purposes such as expansion, modernization, diversification activities. This can be regarded as an indicator of innovation encouragement approach being adopted. The percentage of bank credit to private sector organizations including public and closely held companies is one of the good indicators of innovation being encouraged in an economy. Table 4 Banks credit to the Private Sector as percent (%) of GDP across GCC Countries GCC Descriptive Statistics Bahrain Kuwait Oman Qatar Saudi Arabia UAE Average (% of Bank Credit in GDP) Mean 56.48 66.29 42.52 43.69 38.49 57.78 50.88 Standard Error 3.26 4.17 2.84 3.77 2.32 4.30 3.44 Median 58.50 59.53 40.13 39.88 36.71 60.28 49.17 Standard Deviation 13.05 17.69 11.70 15.99 9.86 18.24 14.42 Sample Variance 170.34 312.79 136.78 255.77 97.30 332.83 217.64 Kurtosis -2.02 0.36 3.54 0.89 -0.18 -1.41 0.19 Skewness -0.01 1.22 1.89 1.34 0.73 -0.02 0.86 Range 33.21 58.38 44.26 52.51 33.87 53.19 45.90 Minimum 40.51 45.39 30.65 26.82 24.24 31.27 33.15 Maximum 73.72 103.77 74.91 79.33 58.11 84.46 79.05 (Source: the global economy, 2018 & computed) The table 4 illustrates the banks credit extended to private sector organizations in GCC countries. It explains that Kuwait is the country which extends maximum credit to private sector organizations through banks (mean 55.2%). It is also observed that Sultanate of Oman is also offering good amount of loans to private sector to start up their business ventures and to practice their innovation strategies (mean 42.52%). Banks are essential financial intermediaries that transform innovations into real commercial practices which yield benefits such innovation in terms of profits, employment opportunities, improved standard of living, enhanced money supply etc. It is evident that GCC countries encourage innovation and helping economy to commercialize those innovations through good financing support. The correlation existing between percent of banks credit to private sectors between Sultanate of Oman and the GCC average is highly positive, i.e. 0.898, reflecting higher encouragement of entrepreneurs for practicing innovation. Acceptable limit of banks credit in support of entrepreneurs could further motivate entrepreneurs to go in for expansion of their economic activities, which could make a considerable positive impact on economic diversification. 6.3. Innovation Index – An indicator of Innovative Abilities and Economic Diversification Innovation index reflects the innovation input index and the innovation output index. This index reflects various components of innovation such as human capital, infrastructure, market refinement, business elegance, knowledge and technology outputs and creative outputs. The innovation index of GCC countries has been summarized as below: http://www.iaeme.com/IJM/index.asp 9 editor@iaeme.com
Innovation and Economic Diversification Indicators – A Comparative Analysis among Gcc Countries with a Special Focus on Sultanate of Oman Table 5 Innovation Index of GCC countries since 2011 Descriptive Saudi GCC Bahrain Kuwait Oman Qatar UAE Statistics Arabia Average (0 – 100) 34.4 42.0 Mean 37.03 35.99 41.27 39.03 38.30 6 3 Standard Error 0.80 0.87 0.98 1.47 0.85 0.67 0.94 33.9 42.0 Median 36.30 36.10 40.30 39.30 37.98 0 0 Standard Deviation 2.11 2.31 2.60 3.89 2.26 1.78 2.49 Sample Variance 4.46 5.34 6.77 15.16 5.10 3.17 6.67 Kurtosis 1.89 0.41 1.99 -0.56 -2.03 -0.89 0.13 Skewness 1.26 0.59 1.29 0.94 -0.22 -0.36 0.58 Range 6.40 6.80 7.70 10.20 5.40 5.00 6.92 31.8 39.4 Minimum 34.70 33.20 37.50 36.20 35.47 0 0 39.5 44.4 Maximum 41.10 40.00 47.70 41.60 42.38 0 0 (Source: the global economy, 2018) The table 5 reflects that GCC countries have been able to make good progress in being innovative in their approach (mean innovation index ranges from 34.46 to 42.03). This reflects industries of all types in GCC countries could progress well in managing and exploring the opportunities of doing business. Sultanate of Oman has also been witnessing a considerable amount of innovation in their approach towards industrialization and economic diversification through industrial investments, infrastructure development and in human development. The correlation between innovation index of Sultanate of Oman and the GCC average showing a positive correlation of 0.882 reflecting innovation happening in Sultanate of Oman goes hand in hand with other GCC countries. The correlation between Sultanate of Oman and Qatar (having highest innovation index among GCC countries) is 0.742, reflecting Sultanate of Oman has been able to progress well with a GCC country where large number of innovations happening. 7. RESULTS, DISCUSSIONS AND CONCLUSION Globalization has a massive effect on the Gross Domestic Product (GDP) of a country. Innovation must be practiced in business activities to sustain the customer base and to get profits. Stieglitz (2006)16 argues that globalization contributes to the GDPs of nations by the transfer of technology from advanced technological countries to developing ones, helping to reduce the knowledge gap between the two and innovation helps economies to progress well internally as well. Innovation is the key for many social and economic problems like unemployment, inflation, money supply, foreign direct investment etc. GCC countries have been progressing well in industrialization and economic diversification as Sultanate of Oman has been able to achieve innovation through its fiscal, monetary and industrial policies. The growth rate in GDP (%) happening in GCC countries are showing strong evidences that they want to move towards industrialization being achieved through economic diversification and innovation. GCC countries do have separate national level strategies focusing on economic http://www.iaeme.com/IJM/index.asp 10 editor@iaeme.com
Dr. Kabaly P Subramanian and Rengarajan diversification and innovation. Sultanate of Oman has been implementing national innovation strategies to turn around its economy from oil dependency to intensive industrialization. Wood (1995)17 argues that innovation must be a successful strategy since the implementation of this requires highly skilled manpower. In fact, that globalization has opened doors for outsourcing labour from other countries. GCC countries are expatriate driven economies wherein the expatriate labour force occupies the highest percentage in total work force being employed in different sectors. For GCC countries, developing national labour work force is one of its key priorities. Keeping this in mind, investments on human development are heavily made which include training, establishing universities, providing scholarship to students etc. The numbers of graduates coming out for labour force strongly evidence this approach being adopted. Thus, the human development index is showing up positive trend (0.8 across GCC countries), which can be regarded as an indicator for economic diversification and innovation to be practised in those economies. Sultanate of Oman has been progressing well in this regard and being able to invest heavily on human development and enhancing knowledge and skills of labour force in order to make them fit to get absorbed into economic diversification and innovation strategies. As an evidence of economic diversification and innovation strategies being adopted in GCC countries, including Sultanate of Oman, they have been able to enhance the industrial production. The contribution of industry value added in GDP of these countries showing a positive drift, indicating their priorities over economic diversification and innovation strategies. Sultanate of Oman has been also progressing well in industrialization and economic diversification with other GCC countries which is evident in the contribution of industry value added in GDP. The amount of banks credit to the private sector could be regarded as one of the indicators of economic diversification and innovation being practiced. The banks credit in terms of percentage of GDP (% on GDP) has been evidencing clearly that GCC countries provide good support for industrialization to happen through economic diversification and innovation strategies. Across GCC countries, the rate of bank credit to GDP is evidencing this scenario, which is a good leading indicator for intensive implementation of economic diversification and innovation approaches being adopted. The same scenario is evidenced in Sultanate of Oman, implying intensification of industrialization. Overall, the innovation index been calculated as well reveals that good amount of innovations being implemented in GCC countries. This index reflects and goes hand in hand with other economic indicators taken for assessing economic diversification. Porter (1985)18 argues that organizations to be able to get sustainable competitive advantage; they need to possess cost leadership and uniqueness in their offerings to its customers. In the same manner, economies would see growth and offer solutions to many social and economic problems if they would be innovative in their approach and encourage novel ways of doing businesses in that economy. The economic indicators suggest that GCC countries are moving towards intensive industrialization and diversifying their economic base. The national level policies and strategies as well focus on reducing the oil dependency and moving towards industrialization. To be more innovative, human development and enhancement of knowledge and skills base is vital, which GCC countries have realized well and executing a wide variety of human resources development linked projects. The economic indicators evidence this approach clearly. Thus, economic diversification and innovation is the need and core of the hour for GCC countries, the policies and strategies clearly vouch this. The indicators reveal that Sultanate of Oman is progressing well in economic diversification and remaining innovative by adhering to national level strategies, which can be clearly grasped in various macroeconomic indicators. http://www.iaeme.com/IJM/index.asp 11 editor@iaeme.com
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