Numerous studies have described the positive impact of export expansion on economic growth, through enhanced economies of scale, adoption of advanced technology and greater capacity utilization. However, a few studies have found that exports have a negative effect on economic growth, noting that this effect arises from the fact that in some countries primary exports constitute a large share of total exports. In particular, primary exports may be subject to large price fluctuations and do not offer knowledge spillovers and other positive externalities. Given that the United Arab Emirates (UAE) is a natural resource abundant country, which has achieved significant economic growth, this research will investigate whether fuel mining exports are the cause of this success.

In particular, this study examines the causality between fuel mining (oil extraction) exports and economic growth in the UAE over the period 1981-2012, using a neoclassical production function augmented with fuel mining exports and imports of goods and services. The data used in this study were obtained from the World Bank World Development Indicators, World Trade Organization Times Series on International Trade, IMF International Financial Statistics and the National Bureau of Statistics. To investigate the existence of a long-run relationship between fuel mining exports and economic growth, the study applies the Johansen co-integration test, while the direction of the short-run causality is examined by applying the Granger causality test in a Vector Error Correction Model framework. In addition, a modified Wald test in an augmented Vector Autoregressive Model is used to investigate the existence of long-run causality. The co-integration test results confirm the existence of a long-run relationship, and fuel mining exports are found to have a negative impact on economic growth in the long run. In addition, the results provide evidence that no causality exists between fuel mining exports and economic growth in the short run.

UAE fuel mining exports have been decreasing steadily since 1981, with fuel mining exports as a proportion of total merchandise exports decreasing from 84% in 1981 to 31% in 2014. In other words, the UAE is moving away from fuel mining as its primary source of export revenue. Further reductions in the relative importance of fuel mining exports should enhance the rate of economic growth, with greater emphasis on imports and physical capital accumulation directly or indirectly increasing growth in the long run.