PSC 321 Lecture Notes - Lecture 7: Dutch Disease, Local Currency, High High
18 May 2018
School
Department
Course
Professor
Today
● Resource rich countries
○ Labor abundant v. labor poor
● Resource rich / labor poor countries (RRLP)
○ Countries with high per capita oil rent
○ Bahrain; Kuwait; Oman; Qatar; UAE; Saudi Arabia
RRLP v. RRLA
● RRLP
○ Resources: high
○ High % of migrant workers
○ Development strategy based on importing cheap labor; subsidizing industry
○ More favorable to private sector than RPLA
● RRLA
○ Resources: low
○ Some are labor “exporters” (Iran; Algeria)
○ State-led development (initially at least, like RPLA)
Features Unique to Gulf States
● Over-reliance on oil revenues
● Reliance on migrant labor
● Labor market
○ Overwhelming reliance on migrant workers (mostly in private sector)
■ In 2010, the GCC ranked 3rd (after USA and EU) as an immigration
region
■ Cheap labor
○ Nationals are employed primarily in the public sector
■ Public-sector jobs have high wages and benefits
○ Unemployment among nationals (especially women)
● Domestic constraints
○ Labor supply is limited
○ More than 50% of the indigenous GCC population is under 25
○ Limited female participation in the labor force
Is Oil a Blessing or a Curse?
● Political effects
○ Hinders democracy
● Economic effects
○ Hinders development?
The Dutch Disease
● Increased revenues from natural resources could lead to a decline in the country’s
industrial sector by raising the exchange rate
● Local currency depreciates
● Goods produced (agricultural or industrial sectors) in the country will be expensive to sell
abroad
Document Summary
Resource rich / labor poor countries (rrlp) Countries with high per capita oil rent. Bahrain; kuwait; oman; qatar; uae; saudi arabia. Development strategy based on importing cheap labor; subsidizing industry. More favorable to private sector than rpla. State-led development (initially at least, like rpla) Overwhelming reliance on migrant workers (mostly in private sector) In 2010, the gcc ranked 3rd (after usa and eu) as an immigration region. Nationals are employed primarily in the public sector. Public-sector jobs have high wages and benefits. More than 50% of the indigenous gcc population is under 25. Limited female participation in the labor force. Increased revenues from natural resources could lead to a decline in the country"s industrial sector by raising the exchange rate. Goods produced (agricultural or industrial sectors) in the country will be expensive to sell abroad. This diverts investment away from industry and toward other sectors; construction; services. Educated unemployment varies between 5 and 12% with higher figures for educated youth.
