Labor market policies and FDI policy liberalization do not exhibit the same pattern across GCC countries. For instance, according to data from the Fraser Institute, FDI policy liberalization tends to go hand in hand with labor market deregulation in Bahrain and Oman. This is not necessarily the case for UAE, however. This paper develops a political economy model based on a common agency model of lobbying (Grossman and Helpman, 1994) and addresses these policy developments in GCC countries. It analyzes the setting of a reform towards deregulating labor markets (ease of hiring and firing rules) as a political compromise pressured by the political influence of a multinational firm and national citizens. Adapting the common agency model of lobbying to an autocratic setting, we show that groups’ influence is not distortive for a specific number of national citizens. Our political economy framework also suggests that the sponsorship system and its amendment helps explain the different patterns of regulation across GCC countries.