The Libyan Economy Between Rentier Reality and the Imperatives of Diversification

The Libyan Economy Between Rentier Reality and the Imperatives of Diversification: An Applied Study of the Herfindahl-Hirschman Index for Competitiveness (1970–2025)

Abstract:

 This study aimed to measure the degree of sectoral concentration in the Libyan economy during the period 1970-2025 using the Herfindahl-Hirschman Index (HHI), while evaluating the impact of external shocks, represented by political and structural shocks, on the development path. To achieve accurate results, the study employed the Autoregressive Distributed Lag (ARDL) model along with the HAC (Newey-West) method. The findings revealed weak economic diversification, indicating that the Libyan economy suffers from the Dutch disease, and that the concentration ratio is high, reaching an average of 0.405. The study also demonstrated that government spending is consumer-driven and increases concentration. On the other hand, Foreign Direct Investment (FDI) is the only factor supporting economic diversification. The study recommended improving the investment environment, diversifying exports, reforming the exchange rate, and directing public spending towards productive sectors and infrastructure to achieve sustainable development.                                                                        

Keywords: Economic Diversification, Rentier Economy, Herfindahl-Hirschman Index (HHI), Sustainable Development, Dutch Disease, Libyan Economy