THE ROLE OF THE HYDROCARBON SECTOR IN THE ALGERIAN DEVELOPMENT EXPERIENCE: 1965-1985

The purpose of this dissertation is to examine the role of the hydrocarbon sector in the economic development of Algeria during the last two decades. This role is assessed in terms of the sector's contribution to economic growth as well as its overall impact on economic transformation. The study uses a national accounting equation and two export growth models to measure and evaluate the contribution to economic growth. The possibility of a negative impact of the fluctuations of oil proceeds on economic growth is also explored through the use of regression models which include instability indices as one of the explanatory variables. The impact on the diversification of the economy is studied through the use of the concepts of backward, forward, fiscal and consumption linkages, developed by Hirschman. The results indicate a substantial contribution of the hydrocarbon sector to economic growth during the study period. Part of this impact is due to its higher marginal factor productivities. In recent years, however, its influence on economic growth has declined indicating a transition toward less dependence on oil. But the oil sector's weak overall linkages prevented it from having a significant impact on the economic transformation of the country. No beneficial externalities were found to exist between this sector and the rest of the economy. Finally, no indication of any impact of oil proceeds instability on economic growth was found. The study suggests that the potential negative impact of export fluctuations may have been counteracted by a judicious foreign debt management strategy. The study concludes that in spite of its contribution to economic growth, the oil sector did not contribute significantly to the overall development of Algeria. Sustainable economic growth has not been improved by the development strategy of the last 15 years because there has been no diversification of the economy. The windfall oil rent has been used to finance a capital intensive unbalanced growth approach, weakening agriculture, eliminating all other exports, and perpetuating an acute unemployment problem. These are symptoms of the Dutch disease which has affected so many other oil producing countries.