Thursday, March 15, 2012

Demand-led Related Diversification: Green Construction in the GCC as a Prospective Case
INSEAD Working Paper 2012/34/IIPI

Economic diversification is high on the governmental agenda of many natural resourcebased economies. The Gulf Cooperation Council (GCC) region is a case in point, as the governments there are making substantial investments in high-tech industries such as semiconductors, the aerospace industry and clean energy technologies. Diversification towards knowledge-based economies, particularly those spurred by technological innovation, has become a prominent objective for all governments of the region. Since these sectors are at present almost absent, governmental plans have focused largely on the supply side, particularly in making the necessary investments in high-tech industries and clusters. This paper argues that little attention has been paid by the GCC governments to the role of the ‘demand side’ in driving economic diversification and industrial renewal. Most efforts have, so far, focused on creating new industries from scratch as opposed to building on existing capabilities. This paper brings together the notions of demand-led innovation and related variety to suggest a new economic diversification policy model for the GCC region, namely ‘demand-led related diversification’ (DLRD). It does that through examining the case of the burgeoning green construction industry. More specifically, the paper argues that the green construction industry presents an attractive opportunity to drive economic diversification through a DLRD policy model. Using insights from the field of innovation studies in general and demand-led innovation in particular, the paper suggests that the green construction industry has a strong potential to become the main vehicle for economic diversification and industrial renewal in the region, provided that the GCC governments adopt demand-led innovation strategies.