Sectoral Contributions to Financial Market Resilience: Evidence from GCC Countries

Abstract

This study investigates the contributions of five key sectors—insurance, materials, utilities, real estate, and transport—to the financial markets of six Gulf Cooperation Council (GCC) countries from 2004 to 2023. Grounded in the Sectoral Linkage Theory and Endogenous Growth Theory, the study employs a Panel Autoregressive Distributed Lag (Panel ARDL) model to examine both short-term and long-term sectoral impacts on financial market resilience. The findings reveal that the insurance and transport sectors offer short-term market stimulation, but lack persistent effects. Conversely, the materials, utilities, and real estate sectors exhibit strong, long-run contributions to financial stability and economic diversification. These results highlight the asymmetric impact of sectoral dynamics on market performance in resource-rich contexts. This research contributes to the literature by providing empirical evidence on sectoral interdependence in oil-dependent economies and highlights the importance of structural diversification for sustainable financial resilience. The study provides actionable insights for policymakers and investors seeking to enhance market resilience and reduce reliance on hydrocarbon revenues through targeted sectoral development.

1. Introduction

This study examines how five critical sectors—insurance, materials, utilities, real estate, and transport—shape the resilience of financial markets in the Gulf Cooperation Council (GCC) region. It applies Hirschman’s (1958) Sectoral Linkage Theory to emphasize the significance of backward and forward linkages, innovation, and human capital in driving systemic stability, and Romer’s (1986) Endogenous Growth Theory to explain the contribution of sector-specific dynamics to macro-financial stability across different time horizons in the context of resource-dependent economies.

Comprising Qatar, Oman, Kuwait, Bahrain, Saudi Arabia, and the UAE, the GCC is confronted by the long-term risks of hydrocarbon dependence, compelling it to adopt ambitious national strategies to promote economic diversification. Saudi Arabia’s Vision 2030 outlines a transformation agenda with flagship initiatives such as the NEOM, the Red Sea Project, and Qiddiya, which represent large-scale investments across tourism, real estate, logistics, and infrastructure—all key to the present study’s sectoral focus (Saudi Vision 2030, n.d.).

Similarly, the UAE’s Abu Dhabi Economic Vision 2030 and Dubai Industrial Strategy 2030 emphasize open markets, private sector competitiveness, and infrastructure development (United Arab Emirates Government Portal, n.d.-a). Dubai’s strategy targets innovation-driven manufacturing sectors such as aerospace, pharmaceuticals, and maritime industries (United Arab Emirates Government Portal, n.d.-b). Together, these plans aim to expand industrial output, raise non-oil sector contributions, and elevate the UAE’s position as a global hub for trade and finance.

Despite recent regulatory reforms, the GCC financial markets remain vulnerable to oil price shocks and geopolitical instability (Mensi et al., 2017; Alqahtani et al., 2020). Institutional development remains uneven, with many firms still reliant on bank financing (Guizani & Ajmi, 2021). The increasing influence of the non-oil sector on these markets (Ulussever & Demirer, 2017; Alqahtani & Klein, 2021) has accelerated interest in economic diversification, highlighting the stabilizing role of certain sectors (Said et al., 2024; Karanasos et al., 2014).

Alotaibi et al. (2022), Alhammadi et al. (2022), and Alhammadi (2024) further highlight the contribution of Shariah-compliant investments to ethical finance, financial stability, digital innovation, and sustainable sectoral transformation. Islamic banking resilience has been indicated to be driven by governance quality, capital adequacy, income diversification, and macroeconomics, particularly under crisis conditions like COVID-19 (Abdul Majid et al., 2025). Building on this, Alhammadi (2024) underscores the broader role of Islamic finance in the GCC.

These findings accentuate the importance of assessing the impact of sectoral dynamics on the resilience of financial markets, given emerging evidence that energy price shocks affect renewable sector development unevenly across income levels in the MENA region (Boulanouar et al., 2025). Existing studies, however, have focused either on single-sector analysis or broad macroeconomic drivers, ignoring sectoral heterogeneity across time horizons and without employing dynamic econometric models capable of differentiating between short- and long-term sectoral effects.

This study addresses these gaps by conducting a panel data analysis spanning from 2004 to 2023, a period marked by oil price volatility, structural reforms, and global crises. Using a Panel ARDL model, we explore both short- and long-term relationships between sectoral indices and financial market performance across five real-economy sectors, guided by the following research questions: To what extent do key sectors contribute to the resilience of GCC financial markets, and how do their effects vary across different time horizons? Based on these questions, the study tests the following hypotheses:

H1. 

The insurance sector enhances short-term financial market resilience in the GCC, but does not exert a significant long-term impact.

H2. 

The materials sector contributes positively to long-term financial market resilience, particularly during infrastructure-intensive cycles.

H3. 

The utilities sector supports both short- and long-term financial stability due to its essential service provision and countercyclical role.

H4. 

The real estate sector exerts both short- and long-term influence on financial markets, with its impact moderated by macroeconomic and regulatory conditions.

H5. 

The transportation sector contributes to short-term financial resilience, although its long-term effects are limited due to exposure to oil price volatility and global trade disruptions.

Our study offers three core contributions: (1) empirically examining sectoral–financial market interdependencies in resource-rich economies; (2) highlighting the heterogeneous effects of different sectors across time horizons; and (3) providing policy-relevant insights into how targeted sectoral development can enhance financial resilience, particularly in economies navigating post-oil transition pathways.

2. Literature Review

Understanding the sectoral underpinnings of financial markets is crucial for resource-based economies, such as those in the GCC, where oil dependency and diversification strategies significantly influence the financial architecture. However, much of the existing literature adopts an aggregated perspective on sectoral contributions, overlooking the differences in resilience effects across time horizons among individual sectors. This study addresses said gap by offering a disaggregated, comparative analysis of five key sectors within the GCC’s unique oil-dependent and reform-driven environment. Unlike prior reviews, this study emphasizes comparative synthesis, highlighting consistencies and divergences across regional and international contexts.

2.1. Insurance Sector

The insurance sector in the GCC has experienced notable growth due to regulatory reforms and mandatory insurance schemes, particularly in Kuwait, Saudi Arabia, and the UAE (IFSB, 2020; Middle East Global Advisors, 2016), demonstrating improved market penetration, enhanced risk-sharing, and supported financial intermediation. Studies from emerging markets similarly suggest that insurance growth stabilizes financial systems and complements capital market development (Zou & Adams, 2008; Zou, 2010).

However, the empirical literature reflects a divergence in temporal impacts. While C. M. Lee (2015) finds that insurance contributes positively to long-run stability in East Asian markets, BenSaïda et al. (2024) emphasize its role in buffering short-term volatility in the GCC. This discrepancy suggests that insurance may act more as a shock absorber than as a catalyst for long-horizon growth. The sector’s underdeveloped investment functions, limited Shariah-compliant product range, and regulatory fragmentation further constrain its long-run effectiveness in the region. Nonetheless, Islamic finance—of which Takaful (Islamic insurance) is a core component—has been identified as a key enabler of sustainability-oriented financial architecture in the GCC (Alhammadi, 2024). Accordingly, we hypothesize that:

H1. 

The insurance sector has a significant short-term influence on financial market resilience in the GCC, but lacks a sustained long-term impact due to structural and institutional limitations.

2.2. Materials Sector

This sector forms the backbone of industrial growth and infrastructure development. In the GCC, the performance of this sector is closely tied to oil revenue cycles, with fiscal surpluses translating into increased public investment in construction and industrial inputs (Mishrif, 2018; Ruqaishi & Bashir, 2015). Mensi et al. (2017) observes a heightened sensitivity of material equities to oil price volatility in Saudi Arabia, indicating their reliance on state-driven expenditure. Recent research such as ElMassah and Hassanein (2023) emphasizes that economic complexity, particularly in non-oil sectors, enhances sectoral resilience and reduces vulnerability to shocks.

Globally, the materials sector has shown mixed resilience. In advanced economies, materials are less volatile due to diversified demand and strong regulatory frameworks (Krausmann et al., 2009), while in resource-rich developing countries such as Malaysia, the sector often mirrors macro-fiscal cycles (Bin Hidthir et al., 2025). This sector consistently demonstrates long-run significance across both global and GCC contexts, especially during infrastructure booms. However, its cyclicality and capital intensity also expose it to external shocks and policy shifts. Accordingly, we hypothesize that:

H2. 

The materials sector exerts a sustained long-term impact on GCC financial markets through its linkages with fiscal expansion and infrastructure-led growth.

2.3. Utilities Sector

The utilities sector—covering electricity, water, and gas—has traditionally been perceived as defensive and stable, due to its inelastic demand (Annez & Wheaton, 1984). In advanced economies, utilities are often buffered from macroeconomic shocks. However, recent studies indicate that utility equities are increasingly vulnerable to energy price fluctuations and policy shifts, particularly in oil-exporting economies with subsidized energy markets and a strong regulatory presence (BenSaïda et al., 2024).

In the GCC, strategic investments in utility infrastructure aim to boost long-term sustainability and economic stability (Al-Saidi & Saliba, 2019; Al-Badi & AlMubarak, 2019; GKW Consult, 2020; Economy Middle East, 2025). Unlike materials and real estate, utilities tend to display both short- and long-run impacts due to their dual role as providers of essential services and investment anchors during economic downturns. This is echoed in regional policy reports highlighting renewable energy investments and desalination infrastructure as pillars of sustainable growth (Economy Middle East, 2025). Energy price fluctuations also asymmetrically affect renewable energy development across MENA countries, reinforcing the need for differentiated policy design across income groups (Boulanouar et al., 2025). Accordingly, we hypothesize that:

H3. 

The utilities sector contributes to financial market resilience in both the short and long term by offering stable returns and supporting sustainable infrastructure development in the GCC.

2.4. Real Estate Sector

Real estate plays a central role in GCC economic diversification strategies, supported by mega projects such as NEOM and large-scale commercial hubs in Dubai and Doha (Mishrif, 2018; Pillai et al., 2021). Globally, the sector is associated with wealth accumulation and financial intermediation, yet it also exhibits high volatility and exposure to credit cycles (Liow & Yang, 2005; Kallberg et al., 2002).

Empirical studies reveal that, while real estate can boost investor confidence and capital inflows, it also poses systemic risks, especially during periods of speculative booms or geopolitical uncertainty (Said et al., 2024). In Asia and the Middle East, the sector exhibits both persistent and time-varying effects, which are conditioned by regulatory oversight and market maturity. Recent evidence from GCC real estate markets confirms these patterns, showing only weak-to-moderate interlinkages that intensify during external shocks, highlighting the importance of localized resilience strategies (Fetais et al., 2024). Accordingly, we hypothesize that:

H4. 

The real estate sector exerts both short- and long-term effects on financial markets in the GCC, shaped by speculative dynamics, regulatory intervention, and macroeconomic cycles.

2.5. Transportation Sector

Transportation serves as a logistical backbone for trade, labor mobility, and supply chain integration. In the GCC, governments have invested heavily in airports, ports, and cross-border infrastructure to position the region as a global logistics hub (Hesse & Rodrigue, 2004; Zhang et al., 2021). However, the sector remains highly exposed to external volatility, particularly oil price shocks and global trade disruptions. The COVID-19 pandemic exposed these vulnerabilities, resulting in severe disruptions to logistics and substantial financial losses (John, 2020; BenSaïda et al., 2024). Oil market volatility further compounds these challenges, significantly constraining the sector’s long-term resilience in the GCC context (Ushakov et al., 2023). While some studies suggest potential long-run benefits from transport integration, the majority indicate a predominantly short-run effect driven by immediate trade flows and investor sentiment. Accordingly, we hypothesize that:

H5. 

The transport sector has a significant short-term effect on financial market resilience in the GCC but a limited long-term influence due to its exposure to global volatility and fluctuating trade conditions.

Despite the breadth of existing research, much of the literature continues to adopt an overly aggregated view of sectoral influences on financial markets. This approach obscures the distinct structural and temporal dynamics at play. Arouri and Rault (2012) acknowledge the long-term sensitivities of utilities and real estate to fluctuations in oil prices. In contrast, Alqahtani et al. (2020) merely scratched the surface of volatility transmission in the transport sector. However, these fragmented insights fall short of offering a coherent, sectorally differentiated understanding of financial resilience, especially in the uniquely oil-dependent and policy-driven context of the GCC.

The tendency to treat sectors as homogeneous contributors ignores the empirical reality that insurance and transportation often operate through short-term, shock-sensitive channels, while materials, utilities, and real estate exert deeper, more durable effects on market architecture. Such generalizations are not only analytically lazy, but also risk misinforming policy and investment strategies. Recognizing this conceptual deficiency, the present study takes a more rigorous approach by hypothesizing and empirically testing the discrete contributions of each sector to financial market resilience, thereby moving beyond the broad strokes that have too often dominated the literature.

2.6. Theoretical Framing

This review draws on the Sectoral Linkage Theory to interpret sectoral spillovers via backward and forward linkages, and the Endogenous Growth Theory to explain long-run impacts driven by innovation and capital accumulation. These frameworks underpin the study’s hypothesis structure and justify the use of Panel ARDL to capture dynamic, time-varying effects across sectors.

3. Methodology and Methods

3.1. Data

This study evaluates the impact of five key sectors—insurance (INS), materials (MAT), utilities (UTS), real estate (RET), and transport (TRT)—on the financial markets (FIN MKT) of Gulf Cooperation Council (GCC) countries. Panel data were employed, collected from Bloomberg and Thomson Reuters DataStream from 2004 to 2023. This period was chosen due to its comprehensive coverage of global financial and sectoral indices, ensuring data reliability and accuracy. This dataset comprises sector-specific indices and aggregate financial market data, carefully selected to represent key economic activities and their relevance to GCC market dynamics. These indices were also chosen to ensure comprehensive insights into sectoral linkages and market performance.

3.2. Measurement of Variables

The financial market was the dependent variable, measured using the market price index (Islam et al., 2017). This index, specific to GCC financial markets, reflects localized economic dynamics and sectoral performance, aligning closely with the study’s focus on regional market behavior, and quantitatively reflects fluctuations in the prices of a designated basket of goods and services. Key inflation-related indices, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), served as reference points for tracking inflationary or deflationary trends.

Sector-Specific Roles

The role of each sector in this study was framed through the lenses of the Sectoral Linkage Theory and Endogenous Growth Theory. The Sectoral Linkage Theory emphasizes the interconnection between economic sectors and their collective influence on financial markets. The Endogenous Growth Theory highlights the role of sectoral performance in driving sustained economic development through innovation, efficiency, and capital allocation. These sectors play pivotal roles in shaping broader market dynamics by contributing to intersectoral capital flow, infrastructure development, and economic stability. The following is a detailed examination of each sector.

Insurance (INS): This sector plays a crucial role in financial markets, acting as an intermediary for risk management (Haiss & Sümegi, 2008). By providing coverage for various unforeseen events, efficient capital allocation within the economy is facilitated, enabling businesses and individuals to navigate risks while sustaining growth. Premiums collected are strategically invested in financial instruments such as stocks and bonds, enhancing market liquidity and dynamics. Moreover, the sector contributes to market stabilization through diversification and the use of innovative tools, such as insurance-linked securities (ILSs), thereby shaping the financial risk landscape. This aligns with the Endogenous Growth Theory as innovation in insurance products, such as parametric insurance, fosters financial inclusivity and resilience.

Materials (MAT): The materials sector encompasses industries focused on extracting, processing, and manufacturing raw commodities, playing a pivotal role in the financial market (Worthington & Valadkhani, 2005). The materials sector’s contributions to infrastructure development and its influence on commodity markets underscore its critical impact on broader economic performance. This reflects the Sectoral Linkage Theory, which emphasizes sectoral interdependencies. Additionally, the sector’s adoption of technological advancements, such as sustainable material production, aligns with the Endogenous Growth Theory by promoting efficiency and innovation as long-term drivers of growth.

Utilities (UTS): Utilities offer stability and reliable income through essential services such as electricity, water, and gas. Known for its defensive characteristics, this sector provides a steady revenue stream, making it attractive to risk-averse investors, particularly during market volatility. Interest rates, infrastructure investments, and regulatory policies influence this sector’s performance. As the sector transitions towards renewable energy and sustainability initiatives, it presents opportunities and challenges, further shaping its role in the financial market landscape (Hall et al., 2017; Saliah et al., 2024). This transition highlights the significance of the Endogenous Growth Theory, as innovation in renewable energy technologies enhances sectoral efficiency and stimulates economic growth.

Real Estate (RET): The real estate sector is a cornerstone for economic growth and market stability. Beyond offering an alternative asset class through Real Estate Investment Trusts (REITs), it significantly contributes to wealth creation and employment. Trends in property values and related financial instruments, such as mortgage-backed securities, enhance liquidity and provide insights into broader economic conditions. However, sensitivity to interest rates adds complexity to its dynamics, influencing investor decisions (Galuppo & Tu, 2010). The Sectoral Linkage Theory emphasizes how real estate’s interconnection with other sectors amplifies its economic impact, while the Endogenous Growth Theory highlights its role in promoting sustainable urban development through innovation.

Transport (TRT): The transport sector is integral to economic development and trade, driving significant investments in infrastructure, including roads, airports, and ports. Companies within this sector enhance supply chain efficiency, thereby attracting investor interest. Its interconnection with global trade ensures that geopolitical shifts and international trade policies have a profound impact on transport-related stocks and decisions. Energy consumption and fuel price fluctuations remain critical factors shaping its profitability and market dynamics (Pearce, 2012). The application of the Endogenous Growth Theory is evident in technological advancements, such as AI-driven logistics systems, which enhance sectoral efficiency and contribute to long-term economic growth.

In conclusion, the contribution of each sector to economic performance and market stability is best understood through the dual lenses of the Sectoral Linkage Theory and Endogenous Growth Theory. These frameworks collectively highlight the interplay of interdependencies, innovation, and efficiency in shaping sustainable development and financial resilience.

3.3. Model Description

As mentioned above, the study primarily utilized panel data as it measures group impacts rather than individual effects, thus minimizing data loss (Baltagi, 2008). Panel data also reduce the noise produced by individual time-series data, thereby preventing heteroscedasticity (Ahn et al., 2013). This aligns with the Sectoral Linkage Theory by allowing the analysis of interdependencies between sectors over time and providing insights into how sectoral dynamics collectively impact financial markets. It is most applicable when data are scarce, especially for emerging economies with short-term variables (Khelfaoui et al., 2022). The issue of heterogeneity is addressed in panel estimations by incorporating subject-specific variables and allowing for dynamic variations resulting from repetitive cross-sectional observations.

The Panel ARDL was used because it effectively captures the intersectoral dynamics emphasized by the Sectoral Linkage Theory, providing a framework to understand how individual sectoral changes propagate through the economy. This approach is particularly suitable for GCC financial markets as it enables the analysis of both short-run and long-run sectoral dynamics, addressing the complex interplay between interconnected economic variables over time. By accommodating mixed levels of integration and heterogeneity across cross-sectional units, the Panel ARDL model aligns well with the study’s focus on capturing nuanced sectoral relationships. The highly popular Autoregressive Distributed Lag (ARDL) model is a rigorous econometric method that captures short-run and long-run relationship dynamics (Nkoro & Uko, 2016). Using this model, the intricate link between the variables was studied, with the specific aim of determining the effect of the independent variables on the dependent variable (Bentzen & Engsted, 2001).

The optimal lag structure was selected using the Akaike Information Criterion (AIC) to ensure consistency across countries with varying macroeconomic and financial conditions. The PMG estimator was chosen over the MG estimator because it assumes long-run slope homogeneity while allowing for short-run heterogeneity, which is appropriate given the common macroeconomic goals across GCC states, but diverse short-run sectoral responses.

This methodology helped ensure that the derived findings were valid, reliable, and ultimately usable as empirical support for making informed economic policy decisions, investment-related strategies, and academic discourses in the fields of economics and finance (McNown et al., 2018). Policymakers in GCC countries could utilize these findings to design targeted fiscal policies that enhance sectoral contributions to the GDP, drawing on insights from the Endogenous Growth Theory. Meanwhile, investors could identify high-growth sectors for strategic portfolio allocation.

Below is the calculation for the generalized ARDL (p, q, …, q) model:

$$Y_{it}={\sum }_{j=1}^p\delta i{Y}_{i,t-j}+{\sum }_{j=0}^q{\beta }^{\prime } X_{i,t-j}+{\phi }_i+{\epsilon }_{it}$$

(1)

where Y_it denotes the dependent variable; (X_it) denotes the vector, which can be pure I(0) or I(1) or cointegrated; δ_i denotes the lagged dependent variables’ coefficient known as scalars; β_ij denotes the coefficient vector; δ_i represents the unit-specific fixed effect; I, …, N; t = 1, 2, 3, …, T; p, q represent the optimal lag orders; and ε_it denotes the error term.

Below is the calculation for the re-parameterized ARDL (p, q, q, q, …, q) error correction model:

$$\mathsf{\Delta }{Y}_{it}={\theta }_i\left[Y_{it-1}-{\mathsf{\lambda }}^{\prime }{X}_{it}\right]+{\sum }_{j=1}^{p-1}{\xi }_{ij}\mathsf{\Delta }{Y}_{it-j}+{\sum }_{j=1}^{p-1}{\beta }_{ij}\mathsf{\Delta }{X}_{i,t-j}+{\phi }_i+{\epsilon }_{it}$$

(2)

In this model specification, y represents the dependent variable and includes both its lagged and differenced forms to capture short-run fluctuations and long-run equilibrium relationships. The vector x comprises the independent variables, also expressed in terms of their lagged levels and first differences. This framework allows the model to reflect both short-term impacts and long-term adjustments, highlighting the dynamic interplay among the variables.

4. Results and Discussion

4.1. Pre-Estimation Results

The Panel ARDL dynamic approach was employed to analyze the impact of the insurance, materials, utilities, real estate, and transport sectors on GCC financial markets. Descriptive statistics and correlations provide a foundational understanding of the variables, linking their characteristics to theoretical frameworks and supporting empirical analysis.

Table 1. Descriptive statistics for the financial market index and sectoral indices in the GCC, 2004–2023.

Variable	Obs.	Mean	Std. Dev.	Min	Max
FIN MKT	120	2153	101	8165	2153
INS	120	2774	101	9855	2774
MAT	120	1035	54	3976	1035
RET	120	3789	44	20,930	3789
TRT	120	525	93	2339	525
UTS	120	1249	96	7200	1249

FIN MKT = Financial Market Index; INS = Insurance Sector Index; MAT = Materials Sector Index; RET = Real Estate Sector Index; TRT = Transport Sector Index; UTS = Utilities Sector Index. Obs. = Number of observations; Std. Dev. = Standard deviation.

illustrates the variability in sectoral contributions. The materials sector (MAT) exhibits significant variability (standard deviation: 1035), reflecting its reliance on infrastructure investments and global commodity prices. This aligns with the Sectoral Linkage Theory, which emphasizes the interdependence of sectors and their collective role in driving economic performance. Similarly, the real estate sector (RET), with the highest observed variability (standard deviation: 3789), underscores its sensitivity to macroeconomic conditions and policy shifts. These observations align with the Endogenous Growth Theory, underscoring the crucial role of capital-intensive sectors, such as real estate, in driving sustainable economic growth.

The correlation matrix in

Table 2. Correlation matrix for the financial market index and sectoral indices in the GCC, 2004–2023.

Variables	INS	MAT	RET	TRT	UTS
INS	1.00
MAT	−0.19	1.00
RET	0.11	−0.07	1.00
TRT	−0.24	0.75	0.24	1.00
UTS	0.17	0.34	0.73	0.48	1.00

FIN MKT = Financial Market Index; INS = Insurance Sector Index; MAT = Materials Sector Index; RET = Real Estate Sector Index; TRT = Transport Sector Index; UTS = Utilities Sector Index. Correlations are Pearson coefficients.

reveals key sectoral interdependencies. The strong positive correlation between materials and transport (r = 0.747) illustrates their mutual reliance on infrastructure-led activities, consistent with the premises of the Endogenous Growth Theory. The utilities sector (UTS), with its moderate correlations across real estate (0.729), materials (0.335), and transport (0.475), underscores its foundational role in ensuring economic stability and supporting growth, further validating the Sectoral Linkage Theory.

These results highlight the interconnected roles of these sectors in shaping the GCC financial markets. High-variability sectors, such as materials and real estate, are primary drivers of diversification and long-term growth, while utilities and transportation provide stability and resilience. This empirical structure reinforces the theoretical expectations established in the literature review, particularly in relation to the Endogenous Growth Theory and Sectoral Linkage Theory. The findings provide a robust basis for exploring short- and long-term sectoral impacts in subsequent ARDL analyses, deepening our understanding of GCC’s economic structure within a theoretical framework.

Before applying panel unit root tests, the Pesaran CD test was conducted to assess cross-sectional dependences. The results indicate mild dependence across countries, justifying the use of second-generation panel techniques.

The unit root test results, a critical statistical procedure that determines the integration status of variables up to order two, specifically AR (2), are shown in

Table 3. Panel unit root test results for the financial market index and sectoral indices in the GCC, 2004–2023.

Variable	I(0)	I(1)
FIN MKT	Stationary	Non-Stationary
INS	Stationary	Non-Stationary
MAT	Non-Stationary	Stationary
RET	Non-stationary	Stationary
TRT	Stationary	Non-Stationary
UTS	Stationary	Non-Stationary

FIN MKT = Financial Market Index; INS = Insurance Sector Index; MAT = Materials Sector Index; RET = Real Estate Sector Index; TRT = Transport Sector Index; UTS = Utilities Sector Index. I(0) = Stationary at level; I(1) = Stationary at first difference. Stationarity determined using the Im–Pesaran–Shin (IPS) test.

. The performance assessment of both the first- and second-generation unit roots was carried out using the Im–Pesaran–Shin (IPS) unit root test. This is a crucial measure as it helps discern the stationary properties of the variables.

Based on the showcased results, FIN MKT, INS, TRT, and UTS appear to be stationary at their current levels. Meanwhile, MAT and RET are stationary at first difference. These results justify the usage of Panel ARDL for running the estimation (Phillips, 2023; Çelik et al., 2023; Yamarik et al., 2016). The next step involves selecting the optimal lag according to the most typical lag selection for each variable, denoted by the model’s lags, such as (1, 0, 0, 0, 0), to prevent issues with degrees of freedom. Among the available methods, the Pedroni cointegration test was selected for its robustness to heterogeneity and suitability for panels with cross-sectional dependence, making it more appropriate than Kao’s test. Johansen’s method was not used due to its requirement for large time dimensions, which is not met in this balanced panel. Next, Pedroni’s cointegration test was applied to determine the long-term cointegration of the variables (Pedroni, 1999, 2004). Cointegration is determined based on the statistical significance of the long-term coefficients and the error correction term.

Table 4. Pedroni panel cointegration test results for the financial market index and sectoral indices in the GCC, 2004–2023.

Test Stats.	Panel	Group
v	−0.99	-
rho	−3.16	−2.65
t	−6.67	−7.54
adf	−7.58	−8.73

FIN MKT = Financial Market Index; INS = Insurance Sector Index; MAT = Materials Sector Index; RET = Real Estate Sector Index; TRT = Transport Sector Index; UTS = Utilities Sector Index. “Panel” and “Group” refer to Pedroni’s (1999, 2004) within-dimension and between-dimension statistics, respectively.

clearly shows that the cointegration test results are significant. The study determined the prevalence of a long-term relationship between the variables by examining the two sets of cointegration outcomes. The null hypothesis of no cointegration is rejected at a 1% significance level for both the group and panel statistics. This finding highlights the crucial role of the co-integration test in identifying significant and enduring relationships between the examined variables.

The findings highlight the interconnected roles of the insurance, materials, utilities, real estate, and transport sectors in shaping the GCC financial markets. This robust co-movement aligns with the Sectoral Linkage Theory, emphasizing how these sectors collectively underpin financial and economic stability. The observed long-term cointegration supports the hypotheses generated in the literature review, affirming that these sectoral dynamics exert persistent effects on financial market resilience in the GCC. The study provides a solid foundation for subsequent policy implications and empirical evaluations by unearthing these long-term connections.

4.2. Post-Estimation Results

Before the estimation, the Hausman test was applied to select the appropriate estimation method, choosing between the Pooled Mean Group (PMG) and Mean Group (MG) based on the p-value. A significance level exceeding 5% for the p-value indicated the suitability of the PMG method. This ensures that the chosen method aligns with the data characteristics, enhancing the reliability and validity of the results. The consistent application of this criterion across the GCC dataset panels forms a strong methodological basis for the analysis. Country fixed effects were included to control time-invariant unobserved heterogeneity. Robust standard errors were applied to account for heteroskedasticity and autocorrelation in the panel error terms, ensuring reliable inference.

These sector-specific results underscore underlying structural differences. The materials sector’s sustained long-run effect may stem from its central role in infrastructure-driven growth cycles, as large-scale public and private investment initiatives in construction and manufacturing support persistent market linkages. In contrast, the insurance sector’s influence is mainly short-term, potentially reflecting underdeveloped regulatory depth and Shariah-compliance limitations that restrict long-horizon capital deployment. Furthermore, the variation in error correction terms across sectors indicates differing speeds of market adjustment: sectors such as materials and real estate exhibit faster convergence to long-run equilibrium, whereas insurance and transport reflect slower adjustment dynamics, possibly due to external dependencies or institutional frictions.

The results in

Table 5. Impact of the insurance sector (INS) on the financial market index (FIN MKT) in the GCC, estimated using the Panel ARDL (PMG) approach.

D. FIN MKT	Coef.	Std. Err	z	p > |z|
LR
INS	0.25	0.18	1.38	0.17
ECT	0.29 ***	0.06	4.52	0.00
SR
INS (D1)	0.52 ***	0.16	3.23	0.00
_cons	−631.51 ***	149.34	−4.23	0.00
Pooled Mean Group Estimation: Error
Several obs. = 120
Number of groups = 6

Note: FIN MKT = Financial Market Index; INS = Insurance Sector Index; LR = Long Run; SR = Short Run; ECT = Error Correction Term. PMG = Pooled Mean Group estimator. Significance levels: p < 0.01 = ***. LR = Long-Run coefficient; SR = Short-Run coefficient; ECT = Error Correction Term. Standard errors are in parentheses.

reveal distinct dynamics in the relationship between the insurance sector (INS) and the financial markets (FIN MKT) in the GCC region. While the insurance sector shows no significant impact on the financial markets over the long term, it exhibits a strong positive influence in the short term. This outcome is consistent with Hypothesis 1, which anticipated insurance’s short-run but not necessarily long-run influence on financial stability. This suggests that fluctuations or developments in the insurance sector trigger noticeable effects on the financial markets within a limited timeframe, consistent with the findings of C. C. Lee et al. (2013).

A statistically significant Error Correction Term (ECT), with a correction rate of approximately 2%, confirms the existence of a long-run adjustment mechanism. This mechanism suggests that imbalances in the relationship between the insurance sector and financial markets stabilize gradually over time.

Theoretically, the findings align with the Sectoral Linkage Theory, which emphasizes the interconnectedness of sectors in driving economic stability and market behavior. The short-run influence of the insurance sector highlights its role as a critical financial intermediary that enhances liquidity and mitigates risk, thereby affecting broader market dynamics. The lack of a long-term impact may reflect structural factors, such as the relatively stable regulatory environment in the GCC countries, the shallow investment capacity of Takaful institutions, regulatory fragmentation across GCC jurisdictions, and limited capital market integration for insurance instruments.

Furthermore, these results support the Endogenous Growth Theory, which posits that sectoral growth contributes to sustainable economic development. The insurance sector’s short-term influence highlights its role in facilitating financial transactions and risk management, which are crucial for promoting market efficiency and growth. However, the maturity of financial markets in the GCC may limit the incremental contributions of the insurance sector to long-term growth.

In summary, the short-term responsiveness of financial markets to changes in the insurance sector reflects its immediate economic significance. Meanwhile, the lack of long-term impact may be attributed to market maturity, investor confidence, and regulatory stability, which collectively foster balance and resilience in the GCC financial system.

The findings in

Table 6. Impact of the materials sector (MAT) on the financial market index (FIN MKT) in the GCC, estimated using the Panel ARDL (PMG) approach.

D. FIN MKT	Coef.	Std. Err	z	p > |z|
LR
MAT	0.59 ***	0.20	−3.01	0.00
ECT	0.42 **	0.15	2.74	0.01
SR
MAT (D1)	5.38	12.33	0.44	0.66
_cons	−1026.94	623.80	−1.65	0.10
Pooled Mean Group Estimation: Error
Several obs. = 120
Number of groups = 6

Note: FIN MKT = Financial Market Index; MAT = Materials Sector Index; LR = Long Run; SR = Short Run; ECT = Error Correction Term. PMG = Pooled Mean Group estimator. Significance levels: p < 0.01 = ***, p < 0.05 = **. R = Long-Run coefficient; SR = Short-Run coefficient; ECT = Error Correction Term. Standard errors are in parentheses.

highlight the significant long-term positive effect of the materials sector (MAT) on the financial market (FIN MKT) in the GCC region. These findings empirically support Hypothesis 2, confirming the strategic contribution of materials during infrastructure-intensive cycles. The materials sector, closely linked to infrastructure and construction activities, is a critical driver of economic growth. The long-term positive relationship suggests that developments in this sector foster expectations of increased infrastructure projects, reflecting broader economic expansion. This outcome reflects the GCC’s state-led development model, where material-intensive mega projects, such as Saudi Vision 2030 or Qatar’s infrastructure for FIFA 2022, drive capital formation. Consistent fiscal surpluses, public–private partnerships, and government-backed industrialization policies likely underpin the significant long-run relationship. This aligns with the Endogenous Growth Theory, which emphasizes the role of sectoral contributions, such as materials, in sustaining economic development. The significant Error Correction Term (ECT) coefficient, indicating a 4% adjustment rate, confirms the presence of a mechanism that gradually corrects imbalances to maintain long-term equilibrium between the materials sector and financial markets.

However, the study finds no significant short-term impact of the materials sector on the financial market, consistent with Kawode (2015). This resistance to short-term fluctuations may be attributed to the time required for information regarding sectoral changes to diffuse across markets and the market participants’ trading behaviors and risk perceptions. The adjustment mechanism underscores the financial market’s gradual alignment with long-term dynamics, further validating the materials sector’s pivotal role in promoting sustained economic stability.

As shown in

Table 7. Impact of the utilities sector (UTS) on the financial market index (FIN MKT) in the GCC, estimated using the Panel ARDL (PMG) approach.

D. FIN MKT	Coef.	Std. Err	z	p > |z|
LR
UTS	1.26 ***	0.17	7.46	0.00
ECT	0.23 *	0.14	1.69	0.09
SR
UTS (D1)	0.57 ***	0.15	3.79	0.00
_cons	−0.28	0.28	−0.98	0.33
Pooled Mean Group Estimation: Error
Several obs. = 120
Number of groups = 6

Note: FIN MKT = Financial Market Index; UTS = Utilities Sector Index; LR = Long Run; SR = Short Run; ECT = Error Correction Term. PMG = Pooled Mean Group estimator. Significance levels: p < 0.01 = ***, p < 0.10 = *. LR = Long-Run coefficient; SR = Short-Run coefficient; ECT = Error Correction Term. Standard errors are in parentheses.

, the utilities sector (UTS) has a pronounced positive influence on financial markets in the short and long term. These results validate Hypothesis 3, demonstrating how utilities function as a stabilizing anchor for economic resilience. This finding is consistent with Xu et al. (2022) and underscores the stabilizing role of the utilities sector in the GCC economies. The industry, comprising essential services such as electricity, water, and gas, is inherently resilient and contributes significantly to economic stability, thereby fostering investor confidence. The utilities sector’s reliable performance bolsters economic health, consistent with the Sectoral Linkage Theory, which posits that interconnected sectors strengthen overall market stability.

The short-term positive impact further highlights the utilities sector’s ability to influence investor sentiment and market dynamics swiftly. This dual impact reinforces the sector’s multifaceted role as a stabilizer and driver of market responsiveness. The statistically significant ECT coefficient, with a 2% adjustment rate, signifies an efficient system for correcting deviations from the long-run equilibrium. This swift adjustment process reflects the responsiveness of market participants to developments in the utilities sector, promoting overall economic and financial stability.

Table 8. Impact of the real estate sector (RET) on the financial market index (FIN MKT) in the GCC, estimated using the Panel ARDL (PMG) approach.

D. FIN MKT	Coef.	Std. Err	z	p > |z|
LR
RET	0.28 ***	0.06	4.50	0.00
ECT	0.39 ***	0.08	4.68	0.00
SR
RET (D1)	0.35 *	0.18	1.88	0.06
_cons	−692.04 ***	135.91	−5.09	0.00
Pooled Mean Group Estimation: Error
Several obs. = 120
Number of groups = 6

Note: FIN MKT = Financial Market Index; RET = Real Estate Sector Index; LR = Long Run; SR = Short Run; ECT = Error Correction Term. PMG = Pooled Mean Group estimator. Significance levels: p < 0.01 = ***, p < 0.10 = *. LR = Long-Run coefficient; SR = Short-Run coefficient; ECT = Error Correction Term. Standard errors are in parentheses. Significance levels: p < 0.01, p < 0.05, p < 0.10.

highlights the positive and statistically significant impact of the real estate sector (RET) on the GCC financial markets, both in the long and short term. These results are in line with Hypothesis 4, indicating that real estate growth, although sensitive to regulatory and macroeconomic shifts, contributes significantly to market resilience. The long-term relationship suggests that sustained growth in the real estate sector has a significant contribution to the region’s economic well-being. This supports the Endogenous Growth Theory, which emphasizes the importance of capital-intensive sectors in fostering long-term economic development. This finding, however, contrasts with those of Lim et al. (2012), who reported differing dynamics in other contexts.

In the short term, the positive impact of real estate developments persists, indicating that the sector’s activities have a direct and immediate influence on market performance. This responsiveness underscores the pivotal role of real estate in shaping investor sentiment and influencing market dynamics in the GCC region. The statistically significant Error Correction Term (ECT), with an adjustment rate of 3%, demonstrates the system’s ability to correct imbalances efficiently. This adjustment mechanism indicates that market participants react swiftly to changes in the real estate sector, ensuring alignment with the long-run equilibrium.

Table 9. Impact of the transport sector (TRT) on the financial market index (FIN MKT) in the GCC, estimated using the Panel ARDL (PMG) approach.

D. FIN MKT	Coef.	Std. Err	z	p > |z|
LR
TRT	0.24	0.61	0.39	0.69
ECT	0.29 ***	0.08	3.85	0.00
SR
TRT (D1)	6.70 **	2.75	2.43	0.02
_cons	−795.39 ***	229.43	−3.47	0.00
Pooled Mean Group Estimation: Error
Several obs. = 120
Number of groups = 6

Note: FIN MKT = Financial Market Index; TRT = Transport Sector Index; LR = Long Run; SR = Short Run; ECT = Error Correction Term. PMG = Pooled Mean Group estimator. Significance levels: p < 0.01 = ***, p < 0.05 = **. LR = Long-Run coefficient; SR = Short-Run coefficient; ECT = Error Correction Term. Standard errors are in parentheses. Significance levels: p < 0.01, p < 0.05, p < 0.10.

reveals contrasting transport sector dynamics (TRT) in the GCC financial markets. These findings support Hypothesis 5, particularly its short-run nature in terms of transport’s influence during oil price or trade-related disruptions. In the long term, no significant relationship is observed, suggesting that the transport sector operates independently of the financial market. This result diverges from Onuora (2019), who reported a long-term connection in other regions. The lack of a long-term link could indicate that the structural characteristics of the transport sector and financial markets in the GCC diminish enduring interdependence.

In the short term, however, the transport sector exhibits a positive and significant influence on financial markets, highlighting the importance of short-term developments, such as infrastructure projects or shifts in trade patterns, in shaping investor sentiment and market activity. The short-run responsiveness aligns with the Sectoral Linkage Theory, which emphasizes the interconnectedness of sectors and their role in shaping economic performance. The ECT coefficient, with a 2% adjustment rate, indicates an efficient mechanism for correcting deviations from the long-run equilibrium, reflecting the swift reactions of market participants to changes in the transport sector.

The analysis highlights the crucial role of the real estate and transportation sectors in the GCC financial markets. While the real estate sector exhibits robust impacts in both the short and long term, the transport sector’s influence is confined to short-term dynamics. This temporal differentiation across sectors directly reflects the theoretical distinctions and hypotheses established in the literature review, adding empirical support to the proposed sectoral model of financial resilience.

These findings underscore the importance of considering temporal dimensions and sectoral characteristics when evaluating their contributions to economic stability and growth in the GCC region. While some sectoral patterns, such as the long-term effects of materials and utilities, mirror broader emerging market trends, others—like the short-term dominance of insurance and the limited role of transport—reflect GCC-specific dynamics shaped by fiscal centralization, regulatory structure, and Islamic finance norms. Cross-sectoral effects are also likely, as infrastructure investment in utilities and transport may boost demand in materials and real estate, highlighting the need to consider systemic interconnections in resilience assessments.

The Error Correction Terms (ECTs) across models indicate the speed at which sectoral disequilibria are corrected. The materials sector exhibits the fastest adjustment (4%), suggesting prompt market responses to infrastructure-driven signals. In contrast, utilities and insurance adjust more slowly (2%), reflecting more stable or regulated environments. These differences highlight how sector-specific structures influence market responsiveness and the persistence of shocks.

Table 10. Summary of short-run and long-run sectoral impacts on financial market resilience in the GCC, based on Panel ARDL results.

Sector	Short-Run Impact	Long-Run Impact	Interpretation Summary
Insurance	Significant	Not significant	Liquidity-enhancing but structurally constrained.
Materials	Not significant	Significant	Infrastructure- and fiscal-driven with long-horizon effects.
Utilities	Significant	Significant	Stability anchor with robust short- and long-term influence.
Real Estate	Marginally significant	Significant	Sensitive to cycles; key diversification driver.
Transportation	Significant	Not significant	Trade-linked and volatile; lacks long-term persistence.

Note: “Significant” indicates statistical significance at conventional levels (p < 0.01, p < 0.05, p < 0.10) based on the PMG Panel ARDL results. “Marginally significant” refers to p values between 0.05 and 0.10. Significance is based on Panel ARDL estimates reported in Table 5, Table 6, Table 7, Table 8 and Table 9.

highlights distinct temporal effects across sectors. Insurance and transport influence markets in the short term, while materials, utilities, and real estate drive long-term resilience. Utilities and real estate show dual effects, acting as both stabilizers and growth anchors. These patterns underscore the need for sector-specific policies to enhance market resilience across various time horizons.

5. Conclusions and Policy Implications

The financial markets of the GCC member states play a pivotal role in fostering economic diversification and expansion by serving as critical platforms for investment and capital mobilization. The insurance sector exerts no significant long-term impact; rather, it demonstrates positive short-term effects, temporarily enhancing market performance. Conversely, the materials sector exerts a positive and enduring influence on financial markets, supporting the Sectoral Linkage Theory. Similarly, the utilities and real estate sectors exhibit long-term positive impacts, underscoring alignment with the Endogenous Growth Theory. By contrast, the transport sector demonstrates no significant long-term effects, reflecting its dependency on broader infrastructural and geopolitical factors.

These findings carry important implications for policymakers, practitioners, researchers, and society. Policymakers can refine strategies for economic diversification by enhancing regulatory frameworks for the insurance sector and prioritizing infrastructure development in the materials and utilities sectors. Investments in renewable energy projects and reforms to promote transparency in real estate markets are critical for attracting long-term investors. Addressing the transport sector’s lack of significant long-term impact requires integrating it into broader economic strategies, such as improving regional connectivity and logistics infrastructure. Financial institutions can leverage these findings to prioritize sectors with long-term growth potential while strategically supporting sectors with short-term contributions. These insights also provide educators with real-world examples for teaching economic diversification, infrastructure development, and investment strategies in emerging markets.

The societal implications of this study extend beyond sectoral performance, highlighting broader considerations of sustainability and equity. Investments in renewable energy infrastructure and affordable housing not only advance environmental and social objectives, but also improve living standards across the GCC. These priorities align not only with Environmental, Social, and Governance (ESG) frameworks, such as the UN Sustainable Development Goals (SDGs) and regional climate finance agendas, but also with Islamic investment ethics, which emphasize social justice, responsible stewardship, and the prohibition of harm (ḍarar) (Alotaibi et al., 2022). Integrating these ethical paradigms enhances financial inclusion, supports intergenerational equity, and strengthens the moral legitimacy of policy interventions. Furthermore, advancing regional connectivity through transport and logistics integration promotes economic inclusion, reduces spatial disparities, and reinforces long-term societal resilience. Additionally, the rise of sustainable procurement and governance frameworks in emerging economies provides insights relevant to GCC sectoral reform. Consistent with regional studies on renewable energy asymmetries (Boulanouar et al., 2025), our findings support the view that sector-targeted reforms must be tailored to national income profiles and structural readiness, especially when designing financial market resilience strategies.

From an academic standpoint, this study contributes to the literature on financial market resilience by operationalizing the Sectoral Linkage Theory and Endogenous Growth Theory in the context of resource-rich, transition-oriented economies. It also advances methodological rigor by applying a Panel ARDL approach to underexplored sectoral indices in the GCC region, offering temporal granularity in capturing both short-run and long-run effects. This extends empirical understanding of how distinct sectors influence financial systems under macroeconomic volatility and structural reform agendas. This study’s scope, limited to five sectors, presents an opportunity for future research to incorporate high-growth areas such as fintech, healthcare, and green energy, which are increasingly relevant to financial resilience and diversification in the GCC region.

While the study offers empirically grounded insights, it is not without limitations. The analysis may be affected by potential endogeneities that are not fully addressed by the Panel ARDL framework. Moreover, omitted variables such as policy shocks, fiscal interventions, or geopolitical tensions may also influence sectoral impacts. Structural breaks arising from major oil price collapses, global financial crises, or COVID-19 disruptions may also alter the relationships over time.

Future research could further enhance robustness by incorporating non-linear models (e.g., TAR or STAR models) to capture sectoral dynamics more effectively. Additionally, structural break tests (e.g., Chow test or Zivot–Andrews test) could be used to validate the stability of the results, especially during significant economic events such as oil price shocks or the COVID-19 pandemic.