Journal of Economic Cooperation, 29, 3 (2008), 23-48 Economic Diversification: The Case of Kuwait with Reference to Oil Producing Countries Ahmed Al-Kawaz 1 The paper addresses the issue of economic diversification as a necessary, but not sufficient condition to enhance economic development process in the state of Kuwait, and oil exporting countries alike. A number of diversification indices are calculated, and an Input- Output based diversity index is provided. The latter measured with reference to the Norwegian economy as a benchmark for a well- diversified oil producing country. Moreover, an econometric model is estimated based on pooled analysis. This is important to draw some conclusions on the main determinants of diversification in the group of a selected oil producing countries: Indonesia, Iran, Kuwait, Oman, and Venezuela. Investment, and other few variables, is turn to be one of the most important determinants. The paper concludes by a set of policy recommendations. 1. Introduction: Economic diversification in Kuwait should be one of the central issues in the process of economic development for at least two reasons: (a) diversification is essential since most of the Gross Domestic Product (GDP) growth derives from the contribution of oil sector, ranging within (40%) for the period (1985-2004); and (b) most of the economic growth has been accounted for by factor accumulation. After a certain stage, 1 Dr. Ahmed Al-Kawaz is an economist in the Arab Planning Institute (API) in the State of Kuwait. His interests are in the field of National Accounts, Input-Output Analysis and Industrial Project Appraisal. * The author is indebted to Mr. Jamal Hamed, Dr. Riadh Ben Jelili, and Prof. Ali A. Gadir, API's staff members, for data collection, econometric advices, and technical comments, respectively. All opinions and any remaining errors are my sole responsibility.