IMPACT OF THE OIL SECTOR ON THE DEVELOPMENT OF THE NON-OIL ECONOMY OF SAUDI ARABIA

The purpose of this study is to evaluate the impact of oil export expansion on the development of the non-oil economy of Saudi Arabia during the 1963-80 period. The primary aim of the study is to analyze the pattern of growth and the character of structural transformation of the non-oil economy during the period, with particular focus on the domestic manufacturing sector. The study used Hirschman's generalized linkage approach. The analytical tools of this approach consist of the well-known backward and forward linkages. These were used to analyze the direct and indirect linkage effects of the oil sector on the domestic economy. The approach includes also the "fiscal" and "consumption" linkages. The fiscal linkage measures the effects of government investment, while the consumption linkage measures the effects of the investment and production activities of the non-oil manufacturing sector. The linkage definitions were adapted to account for the lack of an input-output table and data limitations. To analyze the leakages in the oil stimulus, some leakage indicators were used. The study also used historical analysis to explain some non-economic aspects of the transformation. The main conclusions of the study are as follows: (1) A rapid growth of income and consumption and a significant improvement in the standard of living took place during the period of the study. (2) The backward and forward linkages as well as the consumption linkage were found to be weak relative to the fiscal linkage. The latter linkage, broadly defined, i.e., including the infrastructural investment, was very strong. But more narrowly defined--excluding the infrastructure and oil processing--the fiscal linkage was somewhat weak, though stronger than the other linkages. (3) The main trends of the economy generally were contrary to the expectation of the diversification strategy. The dependence of the non-oil economy on oil revenues has increased; the share of imports in total commodity supply has also increased; the share of domestic manufacturing in non-oil value-added has remained constant, while that of agriculture has declined; and the proportion of non-Saudis in the labor force has risen.