How Should Libya Diversify its Economy

This research looks at the crude oil export dependent Libyan economy and investigates which other industries are suitable for Libya to diversify its economy into so as to enable more sustainable economic growth in the long-term. This study applies a theoretical model developed by MIT researchers on short-term and long-term economic diversification and applies it to the context of Libya over the last two decades. In this study specific attention will be devoted to providing suggestions for sectors to invest in and strengthen the Libyan economy for continued sustainable growth. The author is aware that the diversification process requires careful financial planning as well as large investments over time, and that these investments would be provided through local sources although outside assistance may be sought from international organizations and private sources. Accordingly, this study conducts a trend analysis, using SPSS, on the Libyan exports and imports between 2000 and 2019, observes the short-term and long-term growth potential of various sectors in order to provide a roadmap for diversifying Libya’s income sources in the coming years. Results are in line with the theoretical MIT model which proposes that short-term diversification must be around a cluster of products and services that are closely related to the primary-income source of the country. The author is aware that a model which fits a large economy may not be suitable for a small economy. When this study applied this model to Libya, results show that the short-term sectors that provide the highest return in that country’s context are petroleum product sectors such as petroleum coke, refined petroleum, coal tar oil, asphalt and asphalt mixtures. It was also proposed that the sectors necessary for long-term growth and sustainable development are tourism and agriculture.