Government Expenditure and the Transition from Oil Dependency to a Green Economy in the United Arab Emirates

Abstract

The shift from oil-based growth to a greener economy has become one of the key policy agendas for the United Arab Emirates to balance long-term economic development with environmental sustainability. This study investigates the relationship between government expenditure and the transition from oil dependency to green economy in UAE for the period 2001-2021. The central research question is whether the government spending has a significant impact on the economic growth of the UAE, with subsidiary questions examining the roles of renewable energy consumption, oil rents, and inflation. This study is guided by four theoretical frameworks; Keynesian Fiscal Theory, Green Growth Theory, Resource Curse Theory and the Triple Bottom Line. A positivist, deductive, archival quantitative methodology is adopted using secondary annual data from World Bank Development Indicators. Three analytical stages are deployed: descriptive statistics characterizing variable trends; Pearson correlation analysis; and two OLS multiple regression models, Model 1 (primary: government expenditure and renewable energy) and Model 2 (control: oil rents and inflation). Model 1 (F(2,18)=2.966, p=0.077, adjusted R²=0.164, Durbin-Watson=1.734) reveals that neither government expenditure (B=−0.770, p=0.230) nor renewable energy (B=−2.312, p=0.648) reached statistical significance as predictors of UAE GDP growth. Model 2 (F(4,16)=1.659, p=0.208, adjusted R²=0.116) extended the specification to all four predictors simultaneously and similarly found that none reached significance, with lower explanatory power than Model 1. All four hypotheses (H1–H4) were rejected at the 5% threshold. Correlation analysis reveals that government expenditure is significantly negatively correlated with GDP growth (r=−0.489, p=0.025) and strongly positively correlated with renewable energy (r=0.747, p<0.001). The study concludes that the UAE's green economic transition is institutionally underway but has not yet generated a statistically detectable aggregate growth dividend within the 2001–2021 window. Policy recommendations emphasis accelerating clean energy deployment, reforming fossil fuel subsidies and shifting public spending to productive capital investment.

References

Al-Sarihi, A., & Mansouri, N. (2022). Renewable energy development in the Gulf Cooperation Council countries: Status, barriers, and policy options. Energies, 15(5), 1923. https://doi.org/10.3390/en15051923

Aljarallah, R. A., & Angus, A. (2020). Dilemma of natural resource abundance: A case study of Kuwait. SAGE Open, 10(1), 1–15. https://doi.org/10.1177/2158244019899701

Alssadek, M., & Benhin, J. (2023). Natural resource curse: A literature survey and comparative assessment of regional groupings of oil-rich countries. Resources Policy, 84, 103741. https://doi.org/10.1016/j.resourpol.2023.103741

Apergis, N., & Payne, J. E. (2010). Renewable energy consumption and economic growth: Evidence from a panel of OECD countries. Energy Policy, 38(1), 656–660. https://doi.org/10.1016/j.enpol.2009.09.002

Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98(5, Part 2), S103–S125. https://doi.org/10.1086/261726

Beetsma, R., Cimadomo, J., & van Spronsen, J. (2024). One scheme fits all: A central fiscal capacity for the EMU targeting eurozone, national and regional shocks. European Economic Review, 165, 104721. https://doi.org/10.1016/j.euroecorev.2024.104721

Berument, M. H., Ceylan, N. B., & Dogan, N. (2021). The impact of oil price shocks on the economic growth of selected MENA countries. The Energy Journal, 31(1), 149–176. https://doi.org/10.5547/ISSN0195-6574-EJ-Vol31-No1-7

Bhattacharya, M., Paramati, S. R., Ozturk, I., & Bhattacharya, S. (2016). The effect of renewable energy consumption on economic growth: Evidence from top 38 countries. Applied Energy, 162, 733–741. https://doi.org/10.1016/j.apenergy.2015.10.104

Born, B., D'Ascanio, F., Müller, G. J., & Pfeifer, J. (2024). Mr. Keynes meets the classics: Government spending and the real exchange rate. Journal of Political Economy, 132(5), 1642–1683. https://doi.org/10.1086/727707

Bowen, A., & Hepburn, C. (2014). Green growth: An assessment. Oxford Review of Economic Policy, 30(3), 407–422.

Bryman, A. (2016). Social research methods (5th ed.). Oxford University Press.

Coady, D., Parry, I., Le, N. P., & Shang, B. (2019). Global fossil fuel subsidies remain large: An update based on country-level estimates (IMF Working Paper No. WP/19/89). International Monetary Fund.

Cologni, A., & Manera, M. (2008). Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries. Energy Economics, 30(3), 856–888. https://doi.org/10.1016/j.eneco.2006.11.001

Corden, W. M., & Neary, J. P. (1982). Booming sector and de-industrialization in a small open economy. The Economic Journal, 92(368), 825–848. https://doi.org/10.2307/2232670

Dietz, S., & Neumayer, E. (2007). Weak and strong sustainability in the SEEA: Concepts and measurement. Ecological Economics, 61(4), 617–626. https://doi.org/10.1016/j.ecolecon.2006.09.007

Dong, K., Sun, R., & Hochman, G. (2017). Do natural gas and renewable energy consumption lead to less CO₂ emission? Empirical evidence from a panel of BRICS countries. Energy, 141, 1466–1478. https://doi.org/10.1016/j.energy.2017.11.092

Elkington, J. (1999). Cannibals with forks: The triple bottom line of 21st century business. Capstone.

Emirates Nuclear Energy Corporation. (2022). Sustainability report 2022: Barakah Nuclear Energy Plant. https://www.enec.ae/doc/sustainability-report-2022-659be256280b8.pdf

Fasano, U., & Wang, Q. (2002). Testing the relationship between government spending and revenue: Evidence from GCC countries (IMF Working Paper No. WP/02/201). International Monetary Fund.

Field, A. (2024). Discovering statistics using IBM SPSS Statistics (6th ed.). SAGE Publications.

Gylfason, T. (2021). Natural resources and economic growth: From dependence to diversification. In S. Mitra et al. (Eds.), Natural resources and economic growth (pp. 201–231). World Bank.

Ilzetzki, E., Mendoza, E. G., & Végh, C. A. (2013). How big (small?) are fiscal multipliers? Journal of Monetary Economics, 60(2), 239–254. https://doi.org/10.1016/j.jmoneco.2012.10.011

International Monetary Fund. (2023). United Arab Emirates (IMF Staff Country Report No. 2023/223). https://doi.org/10.5089/9798400245381.002

International Renewable Energy Agency. (2023). Renewable energy markets in the GCC. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2023/Dec/IRENA_Rnewable_energy_markets_GCC_2023.pdf

Keynes, J. M. (2018). The general theory of employment, interest and money. Macmillan.

Khalfaoui, R., Tiwari, A. K., Khalid, U., & Shahbaz, M. (2023). Nexus between carbon dioxide emissions and economic growth in G7 countries: Fresh insights via wavelet coherence analysis. Journal of Environmental Planning and Management, 66(1), 31–66. https://doi.org/10.1080/09640568.2021.1978062

Ministry of Energy and Infrastructure. (2026). Energy strategies to achieve net zero. https://www.moei.gov.ae/en/about-ministry/energy-strategies-to-achieve-net-zero

Nassar, R. (2025). Renewable energy and economic growth in the United Arab Emirates: A causal analysis of CO₂ emissions and environmental policy trends. International Journal of Energy Economics and Policy, 15(6), 815–822.

Nguyen, M. L. T., & Bui, N. T. (2022). Government expenditure and economic growth: Does the role of corruption control matter? Heliyon, 8(10), e10822. https://doi.org/10.1016/j.heliyon.2022.e10822

Organisation for Economic Co-operation and Development. (2011). Towards green growth. https://www.oecd.org/content/dam/oecd/en/publications/reports/2011/05/towards-green-growth_g1g1342a/9789264111318-en.pdf

Papageorgiou, C., Saam, M., & Schulte, P. (2017). Substitution between clean and dirty energy inputs: A macroeconomic perspective. Review of Economics and Statistics, 99(2), 281–290. https://doi.org/10.1162/REST_a_00592

van der Ploeg, F. (2011). Natural resources: Curse or blessing? Journal of Economic Literature, 49(2), 366–420.

Poudineh, R., Sen, A., & Fattouh, B. (2018). Advancing renewable energy in resource-rich economies of the MENA. Renewable Energy, 123, 135–149. https://doi.org/10.1016/j.renene.2018.02.015

Raza, A., Alavi, A. B., & Asif, L. (2024). Sustainability and financial performance in the banking industry of the United Arab Emirates. Discover Sustainability, 5(1). https://doi.org/10.1007/s43621-024-00414-z

Ross, M. L. (2015). What have we learned about the resource curse? Annual Review of Political Science, 18, 239–259. https://doi.org/10.1146/annurev-polisci-052213-040359

Sachs, J. D., & Warner, A. M. (1995). Natural resource abundance and economic growth (NBER Working Paper No. 5398). National Bureau of Economic Research. https://doi.org/10.3386/w5398

Saunders, M. N. K., Lewis, P., & Thornhill, A. (2023). Research methods for business students. https://www.researchgate.net/publication/240218229_Research_Methods_for_Business_Students

Selmey, M. G., Kammoun, A. A., Elgohari, M. I., & Sheta, I. H. (2026). A panel threshold analysis of the impact of renewable and non-renewable energy consumption on economic growth in selected MENA countries. International Journal of Energy Economics and Policy, 16(2), 690–702. https://doi.org/10.32479/ijeep.22121

Shahbaz, M., Nasreen, S., Abbas, F., & Anis, O. (2015). Does foreign direct investment impede environmental quality in high-, middle-, and low-income countries? Energy Economics, 51, 275–287. https://doi.org/10.1016/j.eneco.2015.06.014

Shaikh, S. S., Shabbir, M. S., Amin, N., Song, H., & Alavi, A. B. (2026). Carbon, cities, and change: Rethinking ASEAN's urban future with green tech. Sustainable Development. Advance online publication.

Sweidan, O. D. (2021). The environmental and energy policies to enable sustainable consumption and production in the Gulf Cooperation Council countries. Research Square. https://doi.org/10.21203/rs.3.rs-323554/v1

UAE Government. (2025). The UAE Net Zero 2050 Strategy. https://u.ae/en/about-the-uae/strategies-initiatives-and-awards/strategies-plans-and-visions/environment-and-energy/the-uae-net-zero-2050-strategy

World Bank. (2024). World development indicators: United Arab Emirates. https://data.worldbank.org/country/AE