This paper examines the United Arab Emirates' strategic pivot toward economic diversification through free trade liberalization and tourism expansion. The UAE reduced oil's GDP share from 60% in 1980 to 35.8% by 2007 by embracing open trade policies and developing world-class tourism infrastructure. The paper traces how agreements like the US-UAE Trade and Investment Framework Agreement, combined with investments in airlines, airports, shopping centers, and sporting events, transformed the UAE into a regional economic and entertainment hub. The analysis demonstrates how deliberate policy shifts can rapidly reshape a nation's economic structure and international standing, offering lessons for other petroleum-dependent economies.
In a manner that is unusual for an oil-rich state, the United Arab Emirates has pursued a vigorous free trade policy in an attempt to diversify its economy. Rapid growth in the nonoil economy reduced oil's share of GDP from 60 percent in 1980 to 35.8 percent in nominal terms in 2007, in part thanks to its embrace of free trade. At present, less than half of its export value comes from petroleum-related products. The UAE's economic policy has been judged by outside, objective authorities to be liberal and open to trade. For example, the WTO reports that "the UAE's tariff of 5% was significantly lower than the maximum tariff of 15% that can be charged under international trade regulations." Tourism has been one of the cornerstones of the UAE's diversification program, working alongside a general openness to international business.
Liberalized attitudes regarding trade have improved the UAE's relationship with the West and created a healthier and more vigorous business environment within the nation. The US and UAE entered into a Trade and Investment Framework Agreement (TIFA) in 2004, which established a formal dialogue to promote increased trade and investment between the two countries. The United Arab Emirates is currently the US's 30th largest goods trading partner. The TIFA is not a formal trade agreement but is designed to promote goodwill and dialogue between these important trading partners.
There is also a US-UAE Economic Policy Dialog that meets twice a year. "The EPD will serve as an umbrella for a number of new and ongoing initiatives that are aimed at deepening economic and commercial ties between the UAE and the US. Topics on the agenda included ways to streamline the visa process for UAE business people visiting the US; the elimination of non-tariff trade barriers; the facilitation of direct investments in the economies of both countries; as well as economic developments in the Middle East." These frameworks demonstrate the UAE's commitment to building sustained economic partnerships with Western nations.
Above all, the UAE continues to foster good relations with the West due to the desire to bolster its reputation as a tourist destination. In the last 42 years, the UAE has seen the creation of airlines such as Emirates and Etihad Airways, airports, a metro station, shopping malls, and other major attractions. Thanks to its expansion of attractive facilities and catering to luxury travelers in particular, the UAE's tourism sector is expected to grow by 6.5 percent annually between 2011 and 2021.
The UAE has attracted revenue internationally due to its support of consumer-related businesses and the government's catering to the needs of Western business. Once a small trading hub, Dubai has risen to become an international tourism destination for leisure and business travelers through the infrastructure developed to cater to these markets. Dubai is recognized as an entertainment hub, known for its shopping malls and attractions. It has become a regional hub for conventions and other venues, and the government has set a goal of tripling the revenue the UAE accrues from tourism.
Sporting events contribute greatly to strengthening the UAE status on the world stage as a leading international sport tourism destination. Events include tennis, golf, Formula 1, marathon, cricket, rugby, sailing, and skydiving, all of which enhance the nation's profile and attract international visitors.
"Policy success offers template for resource economies"
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