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A summary version of this paper is to be presented at the seminar on “Sustainable Growth in the Arab World” hosted by the Government of Yemen.
Defined to include the six members of the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), Algeria, and Libya.
The balance distinguishes between two sources of savings: national and foreign. National savings include domestic savings, defined as the excess of domestically produced output (GDP) over consumption, and income earned on factors of production residing abroad including labor remittances and net interest payments on foreign assets/liabilities. Foreign savings are defined as foreign resources available to finance domestic expenditures and are equivalent to the negative of the balance of payment’s current account position. In equilibrium, total savings equals total investment.
For a discussion of savings behavior in developing countries, see Masson, Bayoumi, and Samiei (1995), Ogaki, Ostry, and Reinhart (1992), and Giovannini (1985).
The non-oil countries ran current account deficits amounting to 6.6 percent of GDP which was financed by large external borrowing from official and commercial sources. If one adopts a slightly broader coverage, factor income from abroad (mainly labor remittances) and foreign aid amounted to an average of nearly 8 percentage points of GDP during this period.
During this period, disruptions associated with the 1990/91 Iraqi invasion of Kuwait also played a big role—by increasing expenditure and by reducing investment income as a result of the decline in foreign assets. For details, see El-Erian and Sassanpour (1997) and Chalk, El-Erian, Fennell, Kireyev and Wilson (1997).
Reflecting both country-specific and systemic issues, net external borrowing during 1986-96 fell by 5 percentage points of GDP (to less than 1 percent of GDP) relative to the boom period.
Endogenous growth theory derives its name from its attempt to endogenize the steady state growth rate.
This issue is similar to the inclusion of land in the production function. Given the large share of the oil sector in the overall value added, however, the implications of neglecting the real value of oil resources in growth accounting are potentially much more important.
In the case of the capital stock, time series for this variable (in constant prices) were constructed under the assumptions that (i) the capital stock in 1900 was zero, (ii) the annual growth rate of real gross fixed capital formation during the period 1901-69 could be approximated by the average annual growth rate over the period 1971-95, and (iii) the annual depreciation rate was 5 percent.
The estimates are based on data provided in country Table 1.3—Cost Components of Gross Domestic Product—in United Nations, National Accounts Statistics: Main Aggregates and Detailed Tables, (New York: United Nations, various issues).
The three periods 1971-80, 1971-85, and 1971-90 were used for the calculation of the average annual growth rate of real investment, which was then used for the backward extrapolation of real gross fixed capital formation.
Unfortunately, the data for the non-oil sector GDP and gross fixed capital formation did not cover the same period as the other data. For this reason, the estimation results for equation (4) with total GDP are also shown in the case of Saudi Arabia for sake of comparison. In the case of the U.A.E., the estimated capital share for total GDP fell outside the interval (0, 1) and is thus not reported.
Sarel (1995a) explores the links between the age structure of the labor force, labor productivity, and growth.
The main external development related to significantly higher oil prices. These prices have since fallen sharply.