Stages of Economic Development

The ability of a nation to compete and its priorities for development change as it passes through different stages of economic development. These can be categorized into three stages:

 

Factor-driven economies

• Economies primarily compete on low prices and natural resources
• Enterprises are mainly involved in primary production and occupy a small part of the value chain
• The economy is particularly susceptible to fluctuations in the world economic cycle, commodity prices, and exchange rates

Investment-driven stage

• Companies produce standard products and services
• Productivity is improved through increased investment in infrastructure and a business-friendly environment
• Enterprises move up the value chain beyond basic manufacturing towards product design, distribution, and marketing
• Financial crises and external, sector-specific demand shocks can still impact the economy

Innovation-driven stage

• Economies produce unique goods and services for the global market, driving advances in technology and business methods
• Service industries play an increasingly important role and contribute significantly to GDP
• Economies at this stage of development are more resilient in a volatile global economy

Saudi Arabia is currently at the investment-driven stage of economic development. Some pockets of the economy remain in the factor-driven stage and others are pushing forward into the innovation-driven stage. The Kingdom is investing in its infrastructure, encouraging and capitalizing on foreign economic participation, and producing basic goods and services. The economy remains heavily reliant on natural resources (indicative of a factor-driven economy), but this is offset by strong economic activity in other value-adding areas such as manufacturing, banking and health care services. The oil and gas sector itself, traditionally factor-driven, is evolving to reflect the Kingdom’s movement into more advanced stages of economic development. Increasingly, oil and gas activities are being developed downstream which have, for example, spawned important industry players in the petrochemical sector. Furthermore, new technologies are being applied in oil extraction and recovery, suggesting emergent, innovation-driven activity.

 

About National Competitiveness

What is National Competitiveness

Diamond Framework

How Competitiveness is Assessed