RICHARD M. AUTY
Saudi Arabia provides an example of the fourth basic variant of resource-abundant growth identified in Chapter 8 (see column 5 in Table 8.6). During the 1974-78 and 1979-81 oil booms, an exceptionally large rent stream was furnished to those oil producers like Saudi Arabia whose populations were small relative to their oil reserves. At that time the rent comprised more than 85 per cent of the oil price and the aggregate rent often exceeded the size of the non-oil GDP by several orders of magnitude. Nankani (1979) recognized this condition as a special case of the resource-abundant economy, namely the 'capital surplus' oil exporter. Such countries might evade the staple trap by investing sufficient financial assets offshore and becoming a rentier economy, like Brunei.
Even if the rents are not on a sufficient scale to open up the rentier option, they permit the accumulation of financial reserves with which to lengthen the adjustment to an abrupt contraction of the rent stream, compared with a capital-deficient oil-driven economy like that of Indonesia. A second advantageous feature of the capital-surplus economy is that trade policy closure is eschewed. Sachs and Warner (1995) attribute this to a reduced concern on the part of the governments of capital-surplus economies with the need to diversify away from oil dependence. But, in addition, an open trade policy helps to reduce the Dutch disease effects during a resource boom. The expenditure of foreign exchange on imported goods helps to sterilize the foreign exchange from export earnings and so reinforces the sterilization role of the accumulation of financial reserves overseas. It is especially effective if the imported goods are for infrastructure projects because they are likely to be capital-intensive (Gelb and Associates 1988). Moreover, if trade openness extends to labour markets as well as goods, domestic inflationary pressure is further constrained because foreign workers and construction companies help to eliminate bottlenecks in domestic absorptive capacity.
Saudi Arabia had a third advantage for development, namely that it was an autonomous benevolent political state. Its government did accumulate large financial