Economic Development in Saudi Arabia: An Application of Development Theory to Saudi Arabian Economic Growth

By Deaver, Sean | Indian Journal of Economics and Business, April 2013 | Go to article overview

Economic Development in Saudi Arabia: An Application of Development Theory to Saudi Arabian Economic Growth


Deaver, Sean, Indian Journal of Economics and Business


Abstract

The economy of Saudi Arabia is dominated almost exclusively by operations related to the extraction of enormous oil and gas reserves, discovered during an expedition for fresh water aquifers less than a decade after the country was founded. The nation, in its current form, is only 80 years old and governed by a relatively archaic form of absolute monarchy. The central cultural influence comes from an ultra-conservative and puritanical sect of Sunni Islam, which strives to return its societies back to an original form of Islam, practiced over 250 years ago, which impedes the rights of women and discourages interaction with outsiders.

It is in this geo-political, social and historical context that the fundamentals of economic development strive to produce a more even income distribution, higher per capita output, increased efficiency and technological advancement, a more effective labor force and more free international trade. Saudi Arabia faces many challenges in each of these criteria and this paper addresses many of them in a small space. However, it does not directly address economic theories of Resource Curse or the Dutch Disease as a significant amount of work already exists on the subject and its prevalence in Saudi Arabia is well documented and acknowledged to be a factor. Rather, it establishes a theoretical foundation for the measurement of and processes for structural change in economic development and uses the six characteristics of economic structural change posited by Simon Kuznets to empirically analyze economic development in Saudi Arabia.

INTRODUCITON

Saudi Arabia is a most interesting case study in development economics because it has many unique characteristics, which combine to make economic development especially challenging--mainly surrounding its relative youth, governmental structure and lack of economic factor endowments. For example, it is a relatively young country, formed only in 1932 through a unification of the various tribes in the region. Because of its youth, the country experiences considerable growing pains characterized by social pressures surrounding tribal loyalty and religious obligations as well as economic challenges regarding regional and commodity concentrations in international trade, to name only a few. Second, its governmental formation as a Kingdom closely links political and economic control and centralizes administration around the royal family and its allies--such a concentration of power is detrimental to healthy development metrics. Third, the country is poorly endowed with economic inputs. The vast majority of its territory is unworkable desert; it has precious few commercially viable ports; very few fresh water resources, no farming activity and very little industrial activity beyond that which the production of oil commands. Indeed, oil is the only commodity that Saudi Arabia has in abundance, so much so that its prevalence has become a severe impediment to economic development.

In the context of such a daunting historical, socio-political and economic setting, an application of development theories addressing economic measurement and change can provide insight and perspective in order to better understand the track record and composition of Saudi Arabian economic growth as well as prospects for future development. In the course of that process, this paper will first provide a theological foundation of economic measurement theories and practicum, including the Production Possibilities Curve theory and GDP growth, and Human Development Index measurements. Next, it explores the change process of economic growth by addressing structural change models of economic development, including work by Arthur Lewis and the Neo-classical theory of development--each of these theories will be tied to the Saudi Arabian growth experience. Finally, the paper will use the theories of Simon Kuznets to both empirically assess Saudi Arabian economic development and bridge growth measurements with structural change aspects of economic development. …

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