Saudi Arabia 2000 (RLE Saudi Arabia)

A Strategy for Growth

Jean Cleron

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000156010
• Edition: 1
• Topic: Business
• Subtopic: Accounting
• Index: Business

The sharp increase in both the price of crude oil and resulting revenues to Saudi Arabia has seen the rapid growth of the kingdom's international trade and a large accumulation of financial assets. These sudden and drastic changes have taken place, however, within a mainly traditional economy, unprepared to cope with a massive increase in government revenues. Long-term planning is therefore of the utmost importance to Saudi Arabia, and this study, first published in 1978, presents a detailed analysis of the structure of the kingdom's economy, represented by a dynamic simulation model. The first part of the book considers, among other issues, the production of crude oil, the non-oil production, the accumulation of productive capital, the Saudi population and labour force, the mechanism of domestic inflation, and the relationship of Saudi Arabia with the rest of the world. The second part then presents simulation experiments conducted upon the model, which are commented on and analysed. A concluding chapter illustrates how such a study may be extended to cover several other countries in the Middle East.

PART I
THE ANATOMY OF THE SAUDI ARABIAN ECONOMY

1 INTRODUCTION

The Saudi Arabian economy must be viewed from a dual perspective. There is a dominant, highly capital-intensive oil sector and a traditional, labour-intensive non-oil sector. In 1975 for example, mining, oil and gas generated 82 per cent of the gross domestic product and employed 3 per cent of the labour force, the remaining 18 per cent being produced by 97 per cent of the labour force.

Because the most significant long-term aspect of the oil sector is the generation of income flows, the structural analysis of this sector is primarily concerned with the revenues resulting from postulated production and pricing policies. In the non-oil sector, the emphasis is on the process of economic growth through productive capital accumulation and labour acquisition. Also important to the long-term development of the economy are the dynamics of the Saudi population, the changes in the balance of trade and payments and the accumulation of financial assets which are also considered by the model.

The method of analysis is based upon both the identification and the analysis of the feedback loops that control the long-term dynamics of the economy. The assemblage of all relevant feedback loops constitutes the postulated structure of the economy, that is, the dynamic simulation model. This model is a system-dynamics model and the simulation language is DYNAMO. The model is divided into ten substructures that mathematically describe the various parts of the economic system. These substructures are: the production of crude oil, the pricing of crude oil, non-oil production, the accumulation of financial assets, the accumulation of productive capital, the Saudi population, the labour force, the national accounts, the balance of payments and the mechanism of domestic inflation.

Figure 1.1 shows the major interrelations constituting the structure of the economic system. The arrows indicate that a change in a given variable generates induced changes in another or several other variables. For example, indicates that an increase (or a decrease) in the production of crude oil induces, every other variable being kept constant, an increase (or a decrease) in the gross domestic product.

Figure 1.1: Major Interrelations of the Model

The loops that can be identified in Figure 1.1 are simplified and aggregated. They actually involve more variables and result from the combination of many basic loops that are precisely identified later in this book. Diagrams such as the diagram of Figure 1.1 are useful to an understanding both of the structural links within the economic system and of the mechanisms controlling the various behaviours of the economy.

Each substructure is ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Table of Contents
• Dedication
• Preface
• Part I: The Anatomy of the Saudi Arabian Economy
• Part II: The Strategies of Economic Development
• Bibliography
• Appendix I
• Appendix II
• Index