Economic Characteristics Comparison: UAE and India

About the Economies

The UAE

The UAE was established in 1972 after the merger of six states. The UAE has a vibrant economy. Its performance can be compared to nations in the European region. The country heavily depends on the production and sale of oil, other oil equivalent products, and global investment. Also, it has reported a steady growth of economic performance since its formation. Political stability has been experienced in the country over a long period. This can be attributed to measures that have been put in place by the government to ensure that the environment is suitable for development. For instance, the government has ensured that the Arab Spring unrest is not experienced in the country (Central Intelligence Agency 2015b).

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The UAE is an open economy that is characterized by high per capita income and trade surplus. In recent years, the government of the UAE has been keen on diversifying economic activities. This is based on the fact that the economy depends on the production of oil and gas production. Thus, the government seeks to reduce the income generated from oil production to 25%. Further, the government is keen on improving infrastructure and creating jobs. To achieve this, the country has put in place measures such as zero tax rate and a free trade zone with the aim of attracting foreign investors. The UAE was hit by the global financial crisis because of its dependence on the production of oil.

The government responded to the meltdown by growing expenditure and improving the liquidity of the financial institution. The UAE is a member of the Gulf Corporation Council (GCC). When compared with other GCC members, the country has the second-largest economy after Saudi Arabia. Further, it has the most diversified economy with a highly developed infrastructure (Central Intelligence Agency 2015b).

India

India is not a fully open economy as compared to the UAE. The country is gradually moving from a closed economy to an open economy. In earlier years, the country operated as a self-sufficient nation. It did not engage in external trade. However, the economy was liberalized in 1997. Some of the liberalization measures that were put in place are the minimization of barriers to trade, privatization, and deregulation of industries. These measures sparked economic growth between 1997 and 2011. The economy of India is quite diverse. It depends on a number of activities ranging from agriculture, service industry, and handicrafts.

Further, the country highly depends on the service sector for economic growth and development. The country is also endowed with a large population of highly educated citizens. Therefore, it has become a key exporter of outsourcing and technology services. From the year 2011, the country reported a decline in performance. This can be attributed to a number of factors such as growth in inflation, less investment, and a lack of state commitment to respond to the global changes in the economy (Central Intelligence Agency 2015a). The country also faces a number of problems that have persisted from one decade to another. Examples of such problems are poverty, inefficient and inadequate generation of power, and corruption, among other problems. The country is ranked fourth and one hundred and sixty in the world based on the Gross domestic product (GDP) and GDP per capita, respectively (Central Intelligence Agency 2015a).

Variables

The selection of variables will be based on the existing economic models. Such models usually depict the relationship between two or more economic variables. An example of a model that will be used is the macroeconomic identity. The model is presented below.

Y = C +I + G + (X – M)

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Where;

  • Y = GDP or national income
  • C = Consumption expenditure
  • I = investment expenditure
  • G = Government spending
  • X = Exports
  • M = Imports

Apart from the variables in this model, the others that will be analysed are saving, inflation, unemployment rate, and population.

Data

The table presented below shows the data for the two countries.

Subject Descriptor Units Scale 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
India
GDP
Gross domestic product, current prices U.S. dollars Billions 808.744 908.57 1,152.58 1,262.52 1266.249 1630.472 1826.811 1946.765 2117.279 2314.715
Gross domestic product per capita, current prices U.S. dollars Units 728.599 806.9 1,009.26 1,090.26 1078.577 1369.541 1513.618 1591.574 1708.501 1843.564
Imports and exports
Exports of goods and services Current prices, U.S. dollars Billions 155.927 191.4309 235.4816 297.9711 253.8782 358.2195 443.4501 475.4985 532.7628 601.238358
Imports of goods and services Current prices, U.S. dollars Billions 178.1262 220.1312 281.7506 361.9431 321.9734 429.4341 561.6845 605.8322 595.4017 669.7182869
Export – import Current prices, U.S. dollars Billions -22.1992 -28.7003 -46.2691 -63.972 -68.0952 -71.2146 -118.234 -130.334 -62.6389 -68.47992887
Exports of goods and services Percent of GDP 19.28015 21.06948 20.43089 23.60125 20.04962 21.9703 24.27455 24.42506 25.16262 25.97461709
Imports of goods and services Percent of GDP 22.02504 24.22832 24.4453 28.66824 25.42734 26.33802 30.74672 31.11994 28.12108 28.93307759
Volume of imports of goods and services Percent change 20.355 12.838 18.237 11.027 7.284 13.966 11.001 1.334 3.279 7.355
Volume of exports of goods and services Percent change 19.947 16.258 18.003 9.764 -0.347 19.533 12.924 3.705 6.284 9.488
Government spending
General government total expenditure Current prices, U.S. dollars Billions 214.73 241.90 307.30 363.34 369.92 457.79 502.77 545.29 586.27 637.89
General government total expenditure Percent of GDP 26.551 26.624 26.662 28.779 29.214 28.077 27.522 28.01 27.69 27.558
Consumption
Household final consumption expenditure, etc. Percent of GDP 57.5912 56.96102 55.69324 58.61217 57.17628 56.40401 56.3584 59.45364 59.17727 59.23644356
Household final consumption expenditure, etc. Current prices, U.S. dollars Billions 465.7654 517.5308 641.9069 739.9922 723.9941 919.6516 1029.562 1157.423 1252.948 1371.154844
Inflation
Gross domestic product, deflator Index 103.41 108.974 114.717 123.72 130.357 144.955 156.312 168.436 183.275 198.998
Inflation, average consumer prices Index 115.667 122.917 130.75 141.667 157.083 175.917 191.5 211.128 231.496 250.695
Others
Investment 276.089 320.7161 430.5678 433.5251 465.8277 565.8553 640.0598 700.777 759.6374 832.2789254
Total investment Percent of GDP 34.138 35.299 37.357 34.338 36.788 34.705 35.037 35.997 35.878 35.956
Total investment Current prices, U.S. dollars Billions
Savings
Gross national savings Current prices, U.S. dollars Billions 265.8099 311.4215 422.4883 402.5555 439.9202 513.6313 577.3088 626.2354 690.5717 766.471578
Gross national savings Percent of GDP 32.867 34.276 36.656 31.885 34.742 31.502 31.602 32.168 32.616 33.113
Saving-investment balance Current prices, U.S. dollars Billions -10.2791 -9.29467 -8.07956 -30.9697 -25.9075 -52.224 -62.751 -74.5416 -69.0656 -65.80734745
Unemployment % of total labour force 4.4 4.3 3.7 4.1 3.9 3.5 3.5 3.6 3.6 3.5
Population Persons Millions 1,110.00 1,126.00 1,142.00 1,158.00 1174 1190.524 1206.917 1223.17 1239.261 1255.565
United Arab Emirates
GDP
Gross domestic product, current prices U.S. dollars Billions 180.617 221.965 257.916 314.451 259.733 283.916 341.958 361.912 374.925 387.225
Gross domestic product per capita, current prices U.S. dollars Units 43,988.56 52,486.34 57,468.01 65,991.78 51269.91 54411.12 63625.69 65377.09 65755.27 65934.335
Import and exports
Exports of goods and services Current prices, U.S. dollars Billions 122.0708 152.337 186.6902 247.9981 206.8859 223.5948 309.8542 354.3661 368.9129 383.7649402
Imports of goods and services Current prices, U.S. dollars Billions 93.86248 112.8588 166.1342 219.0014 191.7053 205.1196 247.975 272.8061 291.206 303.5087214
Exports – imports 28.2083 39.47827 20.55601 28.99669 15.18059 18.4752 61.87925 81.55998 77.70692 80.25621879
Exports of goods and services Percent of GDP 67.58543 68.63111 72.3841 78.86702 79.65329 78.75387 90.61178 97.91498 98.39645 99.1064472
Imports of goods and services Percent of GDP 51.96769 50.8453 64.41406 69.64565 73.8086 72.24659 72.51621 75.37912 77.67046 78.38045616
Volume of imports of goods and services Percent change 14.368 8.267 35.907 22.364 -8.906 -1.544 9.209 9.778 4.972 5.74
Volume of exports of goods and services Percent change 10.41 11.239 12.846 12.647 -1.875 -4.176 10.462 6.792 6.067 7.556
Government spending
General government total expenditure Percent of GDP 15.153 14.687 15.599 17.831 27.232 25.701 23.883 24.113 23.182 22.681
General government total expenditure Current prices, U.S. dollars Billions 27.36889 32.6 40.23232 56.06976 70.73049 72.96925 81.66983 87.26784 86.91511 87.82650225
Consumption expenses
Household final consumption expenditure, etc. Current prices, U.S. dollars Billions 105.2531 127.7865 159.2367 192.8966 141.1357 166.8393 178.2126 173.9718 186.7333 196.716513
Household final consumption expenditure, etc. Percent of GDP 58.27419 57.57058 61.73974 61.34394 54.33876 58.7636 52.11536 48.07021 49.80549 50.8016045
Inflation
Gross domestic product, deflator Index 123.518 139.459 152.086 176.051 152.748 164.827 188.727 191.994 193.952 194.294
Inflation, average consumer prices Index 173.909 190.057 211.206 237.081 240.78 242.894 245.036 246.763 250.618 255.346
Others
Investment
Total investment Percent of GDP 19.242 18.215 23.783 22.532 20.762 21.658 21.746 23.33 21.412 21.242
Total investment Current prices, U.S. dollars Billions 34.75432 40.43092 61.34016 70.8521 53.92577 61.49053 74.36219 84.43407 80.27894 82.2543345
Savings
Gross national savings Percent of GDP 31.632 34.479 30.659 30.12 24.151 25.028 31.487 32.623 31.533 32.129
Gross national savings Current prices, U.S. dollars Billions 57.13277 76.53131 79.07447 94.71264 62.72812 71.0585 107.6723 118.0666 118.2251 124.4115203
Saving-investment balance Current prices, U.S. dollars Billions 22.37845 36.10039 17.7343 23.86054 8.802351 9.567969 33.31013 33.63248 37.94616 42.15718575
Unemployment, % of total labour force 3.1 3.3 3.4 4 4.2 4.2 4.1 4 3.8 3.7
Population Persons Millions 4.106 4.229 4.488 4.765 5.066 5.218 5.375 5.536 5.702 5.873

(Source of data – International Monetary Fund 2015; The World Bank Data 2015)

Discussion

Components of Aggregate Demand

GDP

The GDP of the two countries rose during the ten-year period. The GDP for India grew from USD808.744 billion in 2005 to USD2,314.715 billion in 2014, an increase of 186.21% (The World Bank Data 2015). In the case of the UAE, the value rose from USD180.617 billion in 2005 to USD387.225 billion in 2014, an equivalent of 114.39% (International Monetary Fund 2015). It can be noted that the overall growth in India was higher than in the UAE. Besides, the level of GDP in India is higher than in the UAE. Further, in 2009, the UAE had a drop in GDP. This can be attributed to the global financial crisis. In the case of India, there was no drop in the value of GDP.

However, the country experienced slow growth in the value of GDP in 2009. The trend of the values shows that the countries were able to recover at a faster rate from the crisis. In the case of GDP per capita, the countries reported growth over the years. The value of GDP per capita had a similar trend as GDP. However, the UAE had a high value of GDP per capita than India. This shows that the standard of living in the UAE is higher than in India. Even though the global financial crisis had adverse ramifications of international trade with a disproportionate impact on the economies of the UAE and India, there were a lot of positive developments happening in the two countries. Further, it is expected that the value of GDP and GDP per capita will improve in the coming years.

GDP.
GDP.

Consumption Expenditure

The household final consumption expenditure, measured as a percentage of GDP, comprises all goods and services bought by households. The value excluded the purchase of residential houses. In most economies, the consumption expenditure accounts for about 50% to 80% of the gross domestic product. In India, the consumption expenditure accounted for between 55.69% and 59.45% of GDP, while in the UAE, the range was between 48.07% and 61.34%. Further, it can be noted that the consumption expenditure as a percentage of GDP for India was fairly stable while that of the UAE declined. This implies that the over-reliance of the economy on oil dropped. The consumption expenditure in both countries accounts for more than half of the GDP. Also, there was a growth in consumption expenditure in both countries. The percentages show that consumer demand has a strong influence on the economic growth and development of both countries.

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Development of both countries.

Development of both countries.

IInvestment Expenditure

This category gives information on the amount spent by the private sector on investment. In India, the value of this investment grew over the period. The total increase over the ten-year period was 201.45%. The percentage of investment GDP in this country remained fairly constant. The range of this value was between 34.138% and 37.357%. Thus, the growth of investment can be attributed to GDP growth. In the case of the UAE, investment grew by 136.67% during the entire period. The range of the proportion of investment to GDP was from 18.215 to 23.78. In both countries, it can be observed that investment dropped during the global financial crisis. Further, the expenditure on investment in India was higher than in the UAE. Further, the high proportions of investment to GDP can be an indication that the two countries are suitable for investment.

Investment.
Investment.

Government Spending

In the case of India, this expenditure grew by 197.07% during the entire period. On average, government spending contributes to about 27% of India’s GDP. In the case of the UAE, government spending grew by 220.90% over the ten-year period. In both countries, there was significant growth in government spending after the global financial crisis. This can be attributed to the fact that it is an expansionary fiscal policy tool used by various governments to stimulate the economy. Specifically, this tool cancels a reduction in consumer expenditure and investment, thus stabilizing the economy and increases GDP.

Imports and Exports

The final component of the aggregate demand equation is net exports, that is, the difference between the export and imports. In the case of India, the volume of imports and exports grew during the period. Further, the volume of imports of goods and services exceeded exports during the entire period. This implies that the country had negative net exports. Thus, the balance of trade contributed negatively to the GDP of the country. In the case of the UAE, the volume of imports and exports grew during the period. Further, exports exceeded imports. This shows that the country had a trade surplus. Further, it can be observed net exports grew from $28billion in 2005 to $80.26 billion in 2014. The contribution of the trade surplus to GDP grew from 15% in 2005 to 20% in 2014. Thus, the trade balance from the two countries shows that the UAE gained from international trade because of the production of oil, while India makes losses from international trade.

Others

Saving

All the components of aggregate demand function are exhausted in the previous section. Saving is a component of aggregate supply. This variable is of importance because the saving-investment balance is closely related to the trading balance. In the case of India, the saving-investment balance was negative, just like the case of net exports. Therefore, the country is likely to experience a capital inflow to enable India to buy foreign commodities. In the case of the UAE, the saving-investment balance was positive, as observed in the case of a trade surplus. Thus, the country will experience capital outflow to enable foreigners to purchase more of their commodities. During the global recession, there was a significant drop in saving-investment balance. This had an impact on consumer purchasing power.

Inflation

Inflation, as measured by the gross domestic product deflator and average consumer prices, grew during the period in the two countries. The inflation rate in India grew at a faster rate than in the UAE. However, the UAE has a higher level of inflation than India.

Unemployment rate

The unemployment rate is an important variable that should be analyzed in an economy. A high unemployment rate can slow down the rate of economic growth. The two countries seem to have an equal level of the unemployment rate. However, the data show that unemployment in India dropped during the period. The country experienced slight growth during the global financial crisis. In the case of the UAE, the unemployment rate rose by a larger margin than India during the global financial crisis. Further, it can be noted that the unemployment rate in the UAE took a much longer time to fall after the crisis. An increase in the unemployment rate can be attributed to a reduction in economic activities within a country. Thus, a country with a high unemployment rate is likely to have a low value of GDP.

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Population

India has a higher population than the UAE. The population of India is more than 270 times that of the UAE. The population and its composition are significant variables in a country because they have a possibility of affecting GDP, GDP per capita, labor force, and government spending, among other variables. For instance, the data in the table above shows that India has a higher amount of GDP than the UAE. However, the population of India is higher than that of the UAE. Thus, the resulting GDP per capita of India is quite lower than that of the UAE. Further, it is important to evaluate the proportion of the labor force that is actively involved in economic activities.

In summary, the discussion above shows that the overall performance of India’s economy is higher than that of the UAE. Further, India depends on the service industry, while the UAE heavily depends on oil. Also, there has been a growth of performance in the two economies, and the trend is expected to persist in the future. Both countries experienced a slowdown in performance during the financial crisis, and they both recovered from this crisis.

References

Central Intelligence Agency 2015a, The world factbook: India. Web.

Central Intelligence Agency 2015b, The world factbook: united arab emirates. Web.

International Monetary Fund 2015, World economic outlook database. Web.

The World Bank Data 2015, World development indicators. Web.

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StudyCorgi. (2021, June 7). Economic Characteristics Comparison: UAE and India. Retrieved from https://studycorgi.com/economic-characteristics-comparison-uae-and-india/

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