This article traces the evolution of knowledge-based economic development in the Arab World. In pursuing this objective, many countries in the region have made large statedriven human capital investments with the goals of job creation, economic integration, economic diversification, environmental sustainability, and social development. An assessment of the effectiveness of Arab investments in human capital shows marginal progress towards knowledge-based development over the last decade. A disconnect between the skills developed in Arab skills formation systems and those required by private sector employers relegates Arab businesses to contesting lower-skilled, nonknowledge intensive industries which has stalled knowledge-based development in the region