Economic Diversification and Bilateral Trade Agreements in the United Arab Emirates: A Gravity Model Analysis

The United Arab Emirates (UAE) has experienced a remarkable economic shift—from a reliance on pearl diving, fishing, and agriculture to becoming a global trade hub. This study explores the development of the UAE’s bilateral trade agreements within its oil-based economy, especially after the 1970s oil boom. It highlights key strategies such as the Comprehensive Economic Partnership Agreements (CEPAs) and Dubai’s diversification efforts, including the Jebel Ali Free Zone (JAFZ) and tourism expansion. Dubai’s non-oil trade growth has positioned it as a significant global re-export center. Using a gravity-type trade model and pooled data from 1970 to 1997, the study evaluates the UAE’s trade with nine major partners: India, China, the U.S., Canada, South Africa, Egypt, Kenya, the U.K., and Germany. Variables include GDP, distance, exchange rates, FDI, and trade openness. Results show that GDP, FDI, and openness boost trade, while distance and risk reduce it. The model accounts for about 90% of trade variation, offering insights for sustaining growth through strategic diversification.