The transformative power of tech investment: Measuring growth, diversification, and firm outcomes

We examine the asymmetric effects of national technology-driven diversification policies on firm-level profitability in the Gulf Cooperation Council (GCC), addressing a critical gap in the microeconomic literature on the region's transition from hydrocarbons. Using a dynamic panel dataset of 63 strategically important firms across all six GCC countries from 2016 to 2025, we employ a Difference-in-Differences (DiD) approach, complemented by System Generalized Method of Moments (SGMM) estimation, to establish causal relationships while rigorously addressing endogeneity concerns. The results reveal that technology-focused policies have significantly boosted profitability and total factor productivity in firms that actively invest in digital technologies, with policy milestones increasing asset-based returns by 2.1% and equity-based returns by 2.8%. Government subsidies specifically targeted toward technology adoption amplified these effects by an additional 4.5% and 6.5%, respectively, with these impacts intensifying post-2020 to gains of 8.8% on assets and 13.1% on equity for technology-intensive firms. Conversely, firms in traditional sectors with minimal technology adoption showed no statistically significant response to these policy interventions. The findings underscore the efficacy of precisely targeted fiscal incentives and selective policy support for technology sectors in driving successful economic diversification, offering valuable insights for policymakers in resource-rich economies seeking to engineer sustainable, technology-enabled post-oil transitions through firm-level interventions.