Resource Abundance and Economic Development

By R. M. Auty | Go to book overview

12 A Growth Collapse with High Rent Point Resources: Saudi Arabia

RICHARD M. AUTY


12.1 PRINCIPAL FEATURES OF A CAPITAL SURPLUS MINERAL ECONOMY

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

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Resource Abundance and Economic Development
Table of contents

Table of contents

  • Unu World Institute for Development Economics Research (Unu/Wider) ii
  • Resource Abundance and Economic Development iii
  • Foreword v
  • Acknowledgements vii
  • Contents ix
  • List of Tables xi
  • List of Figures xiv
  • List of Contributors xv
  • Part I Introduction 2
  • 1: Introduction and Overview 3
  • References 15
  • Part II Critical Parameters in Resource-Based Development Models 18
  • 3: The Sustainability of Extractive Economies 36
  • Appendix 3.1 Deriving Net Income and Genuine Saving 46
  • References 55
  • References 73
  • Part III Long-Term Perspective On, and Models Of, Resource-Based Growth 94
  • References 109
  • 7: Short-Run Models of Contrasting Natural Resource Endowments 113
  • References 124
  • References 142
  • Part IV Development Trajectories of Resource-Abundant Countries 145
  • 9: Competitive Industrialization with Natural Resource Abundance 147
  • References 163
  • 10: A Growth Collapse with Diffuse Resources 165
  • References 177
  • References 191
  • 12: A Growth Collapse with High Rent Point Resources 193
  • References 206
  • 13: Large Resource-Abundant Countries Squander Their Size Advantage 208
  • References 220
  • Part V Lessons for Policy Reform 223
  • References 237
  • 15: Growth, Capital Accumulation, and Economic Reform in South Africa 239
  • Appendix 15.1 257
  • References 258
  • 16: Reforming Resource-Abundant Transition Economies 260
  • References 275
  • References 294
  • 18: A Nordic Perspective on Natural Resource Abundance 296
  • Part VI Conclusions 314
  • 19: Conclusions 315
  • References 327
  • Index 329
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