Last fall, Dubai—one of seven emirates that comprise the United Arab Emirates (UAE)—sent shock waves through the international economic community when it defaulted on its foreign loans in the face of its $109 billion debt according to the IMF's most recent estimates. Is it possible that even Dubai, long considered a hub for global finance and business, was vulnerable to the effects of the international recession? And, if the city could fall, who would be next?
Ohan Balian, CAS/PhD '02, was among the few that were unsurprised by these developments. As the economic policy advisor at the Executive Office of the Ruler of Dubai from 2005 to 2008 (seconded from the United Nations), and more recently as the senior economic analyst with UAE's National Bureau of Statistics, Balian has developed an insider's perspective on both what went wrong in Dubai and what the country needs to do to restore its economic health. He shares these insights in The Secret of Dubai's Long-Term Economic Success: Counterintuition, published last November.
According to Balian, the culprit is Dutch Disease, a phenomenon that occurs when an inflow of foreign capital causes a movement of resources from the tradable manufacturing sector to the non-tradable service sector. Throughout much of the past decade, Dubai attracted large inflows of capital that were unrelated to the domestic productive capacity of the economy. The problem, says Balian, is that Dubai is currently experiencing a large capital outflow caused by the global liquidity shortage which has re-shifted resources out of the tradable service sectors such as real estate, tourism, and banking.
As collaborators on the Dubai Strategic Plan (2015), Balian and his colleagues anticipated this effect even before it had fully manifested, and they implanted various triggering mechanisms in the plan that are now being activated. New financial regulatory entities have been established, and stimulus funds are currently targeting lagging economic sectors. Balian says that his AU education uniquely suited him to addressing these issues. "The economics PhD program at AU exposes students to different schools of thought rarely seen in other economics departments," he explains. "The failure of traditional neoclassical macroeconomics to predict the recent economic crisis has exposed the many shortcomings of this model, [… and] I have been very fortunate to have been exposed to the alternative models that are taking center stage in current debates on economic policy."