Macro-econometric modeling for an oil dependent economy: an instruments-targets approach for the UAE economy

This study constructs a macro-econometric model to analyze the problems of regions that exhibit dependence on non-renewable resources (e.g. oil). The role of th eoil sector in the UAE and the extent to which it subsidizes the rest of the economy is evaluated. The macro-econometric model constructed consists of four sectors, has 25 equations and is evaluated and calibrated employing dynamic simulation techniques. Counter =factual and policy experiments are carried out and the instruments-targets approach is used to analyze the impact of the oil sector. The paper highlights the continued dependence of the UAE economy on oil and the urgency to diversify the economy and securing more non-hydrocarbon sources of revenue.