Gulf Cooperation Council Diversification: The Role of Foreign Investments and Sovereign Wealth Funds

This paper investigates the role of cross-border investments, including by Sovereign Wealth Funds (SWFs), in driving economic growth and diversification of Gulf Cooperation Council (GCC) countries. Utilizing novel deal-level datasets, we analyze GCC cross-border investment portfolios across various dimensions such as time, geography, and industry. We show that recent years have witnessed an increase in GCC cross-border investments. While the geographic distribution of these investments remains diverse and balanced across different regions, both inward and outward investments are increasingly directed towards the services sector. The empirical results demonstrate a significant positive relationship between both cross-border inward and domestic investments on GCC real non-hydrocarbon GDP. Notably, the medium-term increase in real non-hydrocarbon GDP resulting from inward investments is three times larger than that from domestic investments. This amplification could be explained by increased inward investments in high-growth services sectors. Although domestic investments, including by SWFs, are contributing to the GCC economic transformation, their efficiency could be further enhanced by focusing on strategic partnerships with international investors and fostering a more transparent and competitive business environment. Recent shift in GCC investments in renewable and clean energy projects will further support diversification efforts.