Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
CHAPTER V
THE CONCEPT OF ECONOMIC DUALISM AND ITS APPLICATION TO SOME OF OPEC MEMBER COUNTRIES
The process of economic evolution is characterized by changes in the
conditions of production, consumption, investment and other related macroeconomic
magnitudes. Distinction is made between 'economic growth' and 'economic
development' on the basis whether the changes in the aggregate variables are
significant or not. On the same basis, distinction is also made between the! more
developed countries (MDCs) and the less developed countries (LDCs). However,
the process of transformation from latter to the former has often been marked by the
coexistence of certain economic segments and institutions which are widely different
from each other.1 The simultaneous existence of such segments and institutions
is known by the name of economic 'dualism'. The purpose of this chapter is to take
a closer view of this concept and institutions in a historical perspective; to discuss
how they have been incorporated in the important models of development and
growth; and finally to examine the relevance of these concepts and institutions in the
development process of the OPEC member countries.
5.1 The Concept of Economic Dualism
The concept of dualism has had varying connotations depending on where,
how and when it was applied or discussed. According to Myint, dualism is defined
as "as the continuing coexistence of a 'modern' sector and a 'traditional' sector within
the domestic economic framework of an underdeveloped country.2 Generally
1. For an evolutionary approach to development perspectives, see, Ashok S. Guha, An Evolutionary View of Economic Growth, (Oxford : Clarendon Press, 1981).
2. H.Myint, Economic Theory and The underdeveloped Countries, (New York: Oxford University Press, 1971) pp.315-347.
126
speaking, the modern and traditional sectors are recognized by the existence of a
commercialized industrial sector along with a subsistence agricultural sector. As
pointed out by Lewis, they could be distinguished also by the properties of capitalist
and non-capitalist sectors respectively. At the same time, the two sectors may be
identified on the basis of their organizational setting such as urban versus rural. Sen.
( 1968) has discussed the possibility of technological dualism which are defined on the
basis of differing capital-labour ratio. 3 In a country like India, economic dualism can
he viewed both as a cause and as an effect of the slow growth of per capita income.4
As an effect, it may be present in the form of islands of wealth existing side hy side
with poverty, urban versus rural, landlords versus landless, large-scale versus
small-scale, etc. These diversities of economic characteristics are caused by other set
of economic dualistic factors, what may be termed as financial dualism, the
technological dualism, the socio-cultural dualism, the ecological dualism and so on.
At times, dualism has also been identified by the perpetuation of the existence of a
'leading' sector along with other 'lagging' sectors as may be the case with most of the
oil producing and exporting countries.
In the literature on development economics, the phenomenon of dualism has
been, in general, made out to exist only in the state of underdevelopment. The
transformation of the Japanese economy in a relatively short span of time presents
a glaring example of how economic dualism can be useful for the purpose of
development and growth. Myint ( 1985) is very right in stating while dualism is
pre-eminently a phenomenon of underdeveloped economies, its remnants may survive
3. Amartya Kumar Sen, Choice of Techniques. An Aspect of The Theory of Planned Economic Development, Third Edition, Indian Branch, Oxford University Press, 1972.
4. Malcolm S. Adiseshiah, "Reduce inequalities for harmony", in YOJANA, vol.31. Nos. 1 & 2, 26th of January 1987, p.18.
127
even in the most advanced industrial economies.5
The existence of dual sectors in a developing country implies that the rujce
mechanism which works as a guide for the efficient allocation of resources, is
effective only in a part of the economy. The sector which is not touched by latest
technological developments, is characterized by imperfect markets and remains
largely non-monetized.
5.2 Modelling the Concept of Economic Dualism
The historical development of MDCs has been explained in terms of various
models of growth and development, e.g.,Rostow's theory of "Stages-of-growth".
Unfortunately, this came under criticism because it was not readily applicable to the
experience of the LDCs. As a result, alternative explanations have been given in
terms of some other transitional stages in the process of the development of these
countries.
Theory of dualistic development is one such explanation Dualism is defined
as a transitional state in the process of the development which is characterized by the
coexistence of two sectors which are quite different from each other in terms of their
economic characteristics. In this context, Lewis (1954) was perhaps the first to point
out the dual nature of a developing country in terms of the simultaneous existence
of modern commercialized industrial sector along with a traditional subsistence
agricultural sector.6
5. H. Myint, "Organizational Dualism and Economic Development", in Asian Development Review, vol. 3, No. I, 1985, pp. 24-42.
6. W.Arthur Lewis, "Economic Development with Unlimited Supplies of Labour, "in The Manchester School of Economic and Social studies, vol. 22, May 1954, pp. 139-191.
128
Lewis explains the process of development in a dual economy as composed
of "a capitalist" sector and a "non capitalist" sector. The capitalist sector, according
to him is that part of the economy which uses reproducible capital, make payments
to the capitalist for the use of capital and employs labour for the purpose of profit
maximization. In other words, the capitalist production need not be restricted to
industry or manufacturing. It may also be applicable to plantations, mining and
petroleum. Similarly, the capitalist sector may be either private or public. On the
other hand, the non-capitalist sector which does not use reproducible capital and
does not employ wage labour for profit, is the traditional sector. It is endogenous
and has self-employment. The marginal productivities of labour in the capitalist and
non capitalist sectors are widely different. A fundamental property of the Lewis'
model is the existence of a unique relationship between the dual sectors of the
economy. When the capital sector expands, it draws labour from the non capitalist
sector which is assumed to have "unlimited" supply of labour.
The mechanics of Lewis model can be explained by Fig. 5.1 where OA
represents subsistence earnings in the traditional sector, OW the real wage rate in
the capitalistic sector, and WS the perfectly elastic supply of labour. Given a fixed
amount of capital at the outset, the demand for labour is initially represented by the
marginal productivity schedule of labour, N1D1• If we assume profit maximization,
capital will then be applied up to the point where the current wage equals the
marginal productivity of labour. If OW is the current wage, the amount of labour
employed in the capitalistic sector is OL; beyond L, workers earn whatever they can
in the subsistence sector. The total product N1PLO in the capitalist sector will then
be divided between wages in the amount OWPL and the capitalists' surplus or profits
in the amount WPN1•
1-u ::::::> 0 0 a: Cl
..J <( z (5 a: <( ~ 0 z <(
IJJ
~ ~
129
LEWIS MODEL OF DUALISTIC DEVELOPMENT
N1
. w s
02 03 A
Ot
0~----------------------------------------------------------L
QUANTITY OF LABOUR
SOURCE: Gerald M. Meier, Leading Issues in Economic Developaent., Fourth Edition (Oxford University Press, 1984) p.163.
Fig. 5.1
130
Lewis emphasizes7 that the key to the process is the use of the above
mentioned capitalist surplus. The driving force in the system is generated by the
reinvestment of thi's surplus in creating new capital. As the capitalist sector expands,
labour withdraws from the subsistence sector and gets absorbed into wage
employment. This surplus then becomes even larger, there is still more reinvestment
of profits, and the process continues progressively absorbing surplus labour from the
subsistence sector. This process results into an outward shift of the demand for
labour, from N,D, to N2D 2, N3D 3, ••• and so on.
It is clear from above that the growth in capitalist profits is crucial in this
process and the share of profits in the national income is of strategic importance.
As the capitalist sector expands, and the wage-price ratio remains constant, the share
of profits in national income increases. And since the major source of savings is
profits, savings and capital formation also increase as a proportion of the national
income.
Boeke (1953)8 represents another classical model of dualism about the
existence of the phenomenon in the Eastern Societies. Based on the precapitalistic
state of development of Indonesian economy, Boeke pointed out absence of
unlimited wants and the complete lack of profit-seeking tendency as the main
characteristic of the "Eastern" economy. Both of these properties result into a
backward sloping supply curve of effort and risk taking. According to him the
western economic theory was totally inapplicable to underdeveloped areas even if it
7. Gerald M. Meier, Leading Issues in Economic Development, Fourth Edition (Oxford University Press, 1984) pp 163-1M.
8. J.H. Boeke, Economics and Economic Policy of Dual Societies. As Exemplified by Indonesia, Haarlem:Tjecnk Willink and Zoon, 1953, Chs. 1, 3 and 9, pp.3-9, 21-35 and 100-112.
131
was in terms of a separate imported dual sector of an economy. He said "we cannot
reverse the process of social disintegration in dual societies because it is not possible
to transform the operating forces into the opposite of what they are".9 In other
words he suggested that a uniform economic policy may not be possible for a country
having economic dualism.
Higgins (1955-56)10 reacted to the above thesis very strongly. He maintained
that Boeke's ideas had very little to suggest by way of a positive economic policy for
the development of underdeveloped countries. He refuted Boeke's emphasis on
limited wants or backward sloping supply curves of effort and risk taking. He
pointed out that the consumption pattern of people in Indonesia, Brunei, and
Sumatra for endogenous and imported goods were indicative of "unlimited needs'.
However, to turn these wants into a wellspring of economic growth, the people must
be their own willingness to work, save, and take risk. According to him, this is a task
which may be difficult but not impossible.
Ultimately, Higgins presented an alternative explanation of Eastern dualism
in terms of a set of economic and social factors in which he emphasized the role of
size of family and rapid growth of population. He also suggested that development
of such areas required large amounts of capital investments, especially in the
underdeveloped sector. This investment must be made in a sizable amount and not
through marginal increments. From here it can be concluded that for countries with
limited scope of capital accumulation, external assistance may be required badly,
whereas for a group of countries like OPEC member countries a joint or collective
effort may solve their problem.
9. J.H. Boeke, Q1l. £it.., p.289.
10. Benjamin Higgins, 'The Dualistic Theory of underdeveloped Areas", in Economic Development and Cultural Change, vol.4, 1955-56, pp.99-115.
132
Later the classical model of "dualistic economy" has been modified to
incorporate the relative role played by the dual economic sectors under different
situations. Among the prominent contributions to the chain of these modifications
are Rollins (1956), Hirschman (1958), Ranis- Fei (1961 and 1975) Jorgenson (1961
and 1967), Kelly, Williamson and Cheetham (1972), etc.u
The main objective of these studies by various economists is to explore the
interaction between the two economic sectors. In the particular context when one
of the sectors involved is that of an extractive industry like petroleum, it is important
to take notice of the study done by Rollins (1956)'2, in which he investigated the
effects of the high growth capital-intensive and foreign trade oriented oil industry
on other parts of the economy. He has classified these effects into two categories :
direct influences and fiscal influences. Rollins concluded that the development of
mineral resources in dualistic economies was not likely to lead to general economic
growth. His contention was that foreign investments in the developing country were
generally small in relation to the value of output, the prospects of an accrual of
domestic capital in the private sector were rather slight, and the proportion of labour
force employed was insignificant because such investments tended to be highly
capital-intensive. Rollins was critical about the fiscal influences also and said that
the magnitude of direct payments to the host governments may not be very large.
Moreover, he argued that the presence of a foreign mineral scheme could well
prejudice the possibility of the native government's utilizing funds made available to
it by other sources. Regarding the response of the private sector or the stimulus
II. Gerald M.Meier, ill!. cit., p.162.
12. Charles E. Rollins, "Mineral Development and Economic Growth", in Social Research, Autumn 1956, pp.253-RO.
133
provided by government policies, Rollins observed that private investors were likely
to respond only if the government was capable of directing private expenditures into
the desired channels. But such a direction, in general, was contrary to the financial
interest of the raw-material producers - at least in the short-run. What Rollins
concluded was that foreign investments in oil industries were not likely to lead to
general ecc>nomic growth because they did not become integrated into the economy
of the source country to the extent required.
In a study of Iranian economy, Amuzegar- Fekrat (1971)13 have pointed out
that Rollins conclusions could be invalid in those cases where the domestic political
leadership was very strong and the response of private sector to the state leadership
was tremendous. Under these circumstances the system was expected to produce the
backward and forward linkages as discussed by Hirschman (1958) and others.
Although it is difficult to have a development strategy which could be valid under all
kinds of situations but whenever the development strategy includes an exhaustible
resource (such as oil), we might do well by aiming at increasing the degree of
integration between the foreign-financed export-oriented sector and the rest of the
economy. It implies that the development efforts of the government could be geared
at increasing the backward and forward linkages by focusing on those investments
that would contribute toward raising the relevant demand and supply elasticities.
Under these conditions, the foreign-financed export-oriented sector can be expected
to contribute to general economic growth via direct influences. A well-designed
public expenditure scheme under this strategy can, in turn, enhance the effectiveness
of its indirect forces.
13. Jahangir Amuzegar and M.Aii Fckrat, Iran Economic Development Under Dualistic Conditions,(USA: The University of Chicago Press, 1971), p.9.
D4
Under such circumstances, economists have preferred and advocated what is
known as the "hi~ push" approach. The main objective of this approach is to enforce
a deliberate and conscious effort for Fostering high rates of growth in certain sectors
of the economy. llowever, this strategy of development requires a comprehensive
and consistent planning of production, consumption, investment and other macro
economic activities. This has been already pointed out in the last chapter on
input-output analysis. Hirschman (1958)14 has provided an elaborate description
of the possibility of coexistence of two sectors which are quite different from each
other. The dualistic character of developing countries has been explained by him
with the classical example of the coexistence of "airplane" and "mule"- both fulfilling
their essential economic functions. According to him, "enclaves" created by dualistic
development arc characterized not only by two different levels of wages but also by
the different levels of capitalization, monetization, urbanization, techniques of
production, styles of living etc.
Ranis- Fei (1961)15 have described the conditions of dualistic development
for an economy which is Labour surplus but poor in underground resources so that
a vast majority of population is engaged in agriculture. Their model of the economy
is characterized by widespread disguised unemployment and high rates of
population growth. Their model draws heavily upon the Lewis model and focuses
on the development process between the position of "take-off' and the stage of
"self-sustaining growth". Later (1975), they presented a modified version of their
14. Albert 0. Hirschman, The Strategy of Economic Development, (New Haven Connecticut: Yale University Press Inc., 1958), pp. 125-129.
15. Gustav Ranis and John C.H. Fei,"A Theory of Economic Development", m American Economic Review, Vol.51, No.4, September, 1%1, pp.553-565.
135
model which was applicable for an open dualistic labour surplus economy.16 This
analysis was based on the post war experience of Taiwan and Korea which shared a
relatively strong agricultural infrastructure and exhibited the properties of being
labour surplus and open dualistic. The main purpose of their study was to
demonstrate that the post war experience of Taiwan and Korea through the decades
of 1950s and 1960s was very successful in solving their immediate problem of rising
unemployment. This was achieved by the process of a slow but continuous change
from the a system of production and exports which was traditional and land based
to a system which was nontraditional and labour based. The transition so obtained
has been explained in terms of two sub-phases - an import substitution sub-phase
followed by an export substitution sub-phase. Whereas the import substitution
sub-phase was characterized by the setting up of a variety of import substitution
industries, the export substitution sub-phase implied that the traditional exports (e.g.
rice, sugar etc.) were replaced by the non-traditional labour-intensive manufacture
exports. It may be noted that since the work of Fei - Ranis these economies have
moved further on the path of export substitution and have switched on to the
specialization of more sophisticated manufacture items. The studies of Ranis - Fei
are, therefore, very helpful in understanding the role of the dominant sector in the
development of a dualistic economy.
Around the same time, Jorgenson (1961) discussed how a dual economy would
develop under the assumption of agricultural surplus. According to him , the course
of development would change if there was a change in other parameters of the
system such as the net rate of reproduction defined as the difference between birth
16. John C.H. Fci and Gustav Ranis, "A Model of Growth and Employment in The Open Dualistic Economy", in Journal of Development Studies, vol.ll, No.2, January, 1975, pp.32-63.
136
and death rates prevailing at that time. This model was applicable to a country with
a fast growing population. An increase in the net rate of reproduction results in the
agricultural labour force growing at a rate which is more rapid than the rate of
growth of population. As a result the economy declines to what is known as
Leibenstein's "low-level equilibrium tnip". Accordingly, the development process of
a dual economy is characterized by a balance between capital accumulation and the
growth of population each adjusting to the other. On the contrary the growth
process of an already developed economy is characterized by a balance between
savings and investment and the growth of population is treated as a constant
parameter.
The Jorgenson model of a dual economy divides the economic system into two
sectors. 17 The advanced or modern sector is represented by the manufacturing
sector whereas the backward or the traditional sector is denoted by agriculture.
Special feature of this model is the asymmetry in the production functions of these
two sectors. The output of agricultural sector is a function of land and labour only
and there is no capital accumulation. On the other hand, the output in the
manufacturing sector is a function of capital and labour alone and no land is
required. Secondly, agricultural activity is characterized by diminishing returns to
scale and the production in the manufacturing sector changes in accordance with
constant returns to scale. Another feature of this model is that the production
functions for agriculture and industry can shift over time due to the technological
developments in these two respective sectors.
17. Dale W. Jorgenson, "The Development of A Dual Economy", in The Economic Journal, vol."ll, March, 1961, pp. 311-312.
137
As a later stage, Jorgenson (1967) 18 focused on the issue of structural change
in a dualistic economy by way of contemplating a relationship between the degree
of industrialization and the level of economic development. The former can be
measured by the share of Industrial activity in the macro variable such as GOP,
employment, saving and investment, while the latter is denoted by an increase in the
real GOP per capita. Researchers by now had established a positive empirical
association between them. The association between the degree of industrialization
and the level of economic development can be established theoretically also under
the set of assumptions both classical as well as neo-classical. Under these alternative
sets of assumptions, Jorgenson ·examined how the policies of change in the structure
of output, employment, rate of investments, factor intensity and factor substitution
could he important strategies for the industrialization of the developing countries
especially those exhibiting the properties of economic dualism.
Jorgenson, therefore, concluded that the industrial sector can play an
important role in the development of a dual economy with or without disguised
unemployment. This feature of his model is relevant to all LOCs including the oil
exporting countries. The end result of the process of the development is that the
industrial output and industrial labour force ultimately become dominant. This is
facilitated by a shift in the consumer demand from a~ricultural to industrial products
and the rising proportion of investment demand in total output. However, it is of
utmost importance that the supply conditions for the agricultural sector must not be
neglected. In other words, the industrial development of a dualistic economy may
not be economically viable unless technological progress in agriculture is sufficiently
18. Dale W. Jorgenson, "Surplus Agricultural Labour and The Development of A Dual Economy", in Oxford Economic Papers, Vol.t9, No.3, November, 1%7, pp. 338-362.
138
rapid to outstrip the growth of population and the force of diminishing returns.
From an analytical point of view, the process of structural change and
economic transformation of a dualistic system can he treated by various techniques.
The classical and neo-classical explanations of growth and development are based on
partial equilibrium analysis. It is a useful technique to understand the role of various
factors taking each of them separately and individually, hut it cannot spell out the
interaction between factor and product markets. The interdependence of factors and
outputs is better described by a general equilibrium system. By this method we are
able to take stock of the factor and product markets together and know about the
steady growth path followed by the economy. While Walras and Von-Neumann are
the main contributors of general equilibrium theory, partial equilibrium framework
is associated with the names of Chenery, Clark and Kuznets. Following the
assumptions and the framework of general equilibrium model, Leontief provided the
input-output technique. The static and dynamic versions of this model help us in
examining sectoral changes in the economy based on the assumption of proportional
growth in the factor and commodity markets. Kelly, Williamson and Cheetham
(1972) 19, presented a growth model which is capable of generating non proportional
changes in the factors and outputs of different sectors. Based on the formulations
of Jorgenson and Fei-Ranis, the model given by Kelly et.al is made more general by
the incorporation of technological dualism in agricultural progress, dualism in rural
and urban household demand for goods and services, and dualism in the household
choices for family size. By extending it to more general characteristics of an
underdeveloped economy "with special reference to Philippine and other South East
19. Allen C. Kelley, Jeffrey G. Williamson and Russell J. Cheetham, Dualistic Economic Development. Theory and History, (Chicago: The University of Chicago Press,1972), ch.2, pp. 22-57.
139
Asian countries", their model is capable of presenting more realistic analysis of a
dualistic economy.
The Japanese experience of development and growth is an excellent case
study. It has often been selected as a proto-type of the labour surplus country
·following a successful path of development. Ohkawa • Rosovsky (1960)20 have
provided a thorough analysis of the sectoral development of Japanese economy
where they assess the role of agriculture in modern economic development of this
economy. During the period of long sustained growth since Meiji restoration, there
have been various changes in the development process of Japan which provide a
good example of how a country's development can be assisted by agriculture, foreign
sector and power of the state. According to Ohkawa ·- Rosovsky, World War I
marked a distinct structural change in this economy which was especially pronounced
in the relationship between agriculture and industry. Analyzing the role of agriculture
during the period from 1878 to 1917, they estimated the advancement in output and
productivity. It was found that the expansion rate of food crops was high enough to
outstrip the growth rate of population. It averaged about 2.3 per cent per annum in
this period. The land productivity in the same period increased by 80 per cent. The
labour productivity (output-labour ratio) was reported to have increased at annual
rate of 2.6 per cent. The implications of these changes in output and productivity
become clear when understood in conjunction with other endogenous macro variables
of Japanese economy. Thus, the expansion of agricultural output was almost large
enough to supply much needed food for the rapidly growing urban population and
also to meet the increased food demand a rising from a rise in real per capita
20. Kazushi Ohkawa and Henry Rosovsky, "The Role of Agriculture in Modem Japanese Economic Development", in Economic Dcvclo[!mcnt and Cultural Chanie, Vol.9, No.2, October, 19(..0, pp.43-67.
140
income.21 In this way, the forces of demand and supply for food were almost in
equilibrium during the initial phase of her industrialization. In other words,
agriculture in Japan developed in balance with the industrial sector thus revealing
a pattern of harmonious dualistic development. Such a contribution in the
industrialization and urbanization was necessary to contain the inflationary pressures
stemming from possible shortage of food as experienced by many developing
economies of present times.
Besides its domestic function, agriculture also played a big role in the
expansion of its external sector. Silk-cocoons and tea-leaves were the primary
agricultural goods used in the manufacturing and export of raw silk and tea. In this
way agriculture played the role of foreign exchange earner which was very important
for the early economic development of Japan.
5.3 Application of Economic Dualism in Some of OPEC Member Countries
Almost all the theories and explanations of economic dualism discussed in the
last section point out to the existence of a leading sector which in the course of
development makes a positive impact on the remaining sectors of the economy. In
other words, the dominant sector introduces a kind of dynamism and puts the
econoll]y on the path of sustained growth.
The study of economic development broadly defined as a process whereby per
21. During the period 1878-1917 population increased at a rate between 0.8 and 1.3 per cent per year. The income elasticity for demand of food items was estimated to be between 0.6 and 0.7. Since per capita real income increased at about an annual rate of 2 per cent, these data taken together indicate that the demand for food increased roughly at the rate of 2 per cent. per annum.
Sec, Kazushi Ohkawa and Henry Rosovsky, Q1h cit., p.46.
141
capita mcome increases over a period of time, is the study of the complex
relationships of interdependent variables among various economic sectors. During
the period encompassing last two centuries, the process of economic development
in the OPEC member countries has generally been led by the so-called growth
centers or leading sectors. The growth center in some cases has been no more than
a single industry. A leading sector is one that experiences a high growth rate in
relation to the rest of the economy and consequently, induces favourable response
from the other sectors. The inducement is provided by the supply of low cost
products for the consumer, or by stimulating output in other industries, or by creating
external economics that can be captured and integrated into other sectors of the
economy.
In the case of OPEC member countries, the leading sector is obviously the oil
sector which includes the allied activities also.' As mentioned earlier this sector has
been operated by multinational oil companies. The presence of multinational oil
companies in operation of the oil sector introduces complications in the evaluations
of overall costs and benefits. We shall not go into the details of issues such as
foreign dominance and dependence arising from the foreign investments in this
sector. Instead, we confine to an examination of the backward and forward linkages
of this sector in dualistic settings of economies of the OPEC member countries:·
In this section, therefore, we study the actual position of sectoral distribution
*
**
The influence of the oil industry in these countries is so pervasive that it tends to embrace all their sectors. Thus, while the mining and quarrying activities belong to the primary sector, its refining is characteristic of manufacturing. At the same time, the distribution and marketing of oil and allied product are to be classified in the service sector.
Here Oil sector and oil industry have been used as synonyms. They both mean mining and quarrying of crude oil and natural gas. The process of oil refining is included in the manufacturing sector.
142
regarding important macroeconomic variables in relation to a sample of selected
OPEC member countries namely, Gabon, Iraq, Libya, United Arab Emirates
and Venezuela: The study of the relationship of their agriculture sector with other
sectors (specially the manufacturing sector) of the economies can throw light on the
situations of economic dualism in these countries. Before that, however, we give a
brief description of the major economic sectors of these countries (see Appendix
4.14).
5.3.1 Impact of Oil Sector on the Economies of OPEC Member Countries
The experience of the OPEC member countries shows that as long as the oil
sector remained under foreign control, its impact on the rest of the economy was
minimal. The overall contribution of oil sector was more or less in line with the
observations made by Rollins for Bolivia and those of Amuzegar- Fekrat for Iran.22
These studies showed that the royalties paid by the multinational oil companies
formed but a small portion of the total developmental expenditure. In other words,
the major part of the government budgetary finances came from sources other than
oil e.g. taxes, customs, and road levies. Similarly, the direct impact of the oil sector
in terms of the backward and forward linkages have been minimal also. The flow
of resources from the domestic economy into oil industry was totally insignificant.
No strategic industries, other than oil, developed in spite of the availability of raw
materials,- cheap labour, and other relatively favourable circumstances. It implies
that the effect of backward linkages was absent. As far as the forward linkage are
concerned, the impact was again feeble and insignificant. The multinational oil
•
22.
The selection of these countries in the sample is largely due to the slightly better availability of data on their macro variables e.g., GOP, capital formation and employment of labour.
Sec, Rollins (1956) and Amuzegar-Fekrat (1971), Q1!:. cit., pp. 253-80 and p.9 respectively.
143
companies had no interest in establishing the by product and ancillary industries
linked to oil production and refining. Since they kept their foreign exchange
earnings, reserves, and deposits in the foreign banks, the developmental impact on
banking and other financial institutions was insignificant, and therefore, there was no
inducement for the development of tertiary sector. In fact, except that some oil was
used for domestic consumption, the overall forward linkage effect was very little.
Consequently, most of the economies of OPEC member countries continued to
remain glaring examples of dualistic economic structure because of the prolonged
existence of their respective traditional sector along with the foreign dominated and
highly capital-intensive oil sector.
However, the above mentioned economic scenario of the OPEC member
countries was valid only up to early 1970s when the nationalization of the oil industry
was completed in almost all the countries. As a result of nationalization, the leading
sector came under the direct control of the sovereign governments and was made to
play a positive role in the process of development. There have been significant
structural changes in all those OPEC member countries which are characteristic of
forward looking and upward rising economies. As shown in the subsequent analysis,
the share of the traditional sector which played an important role of sustaining the
development process, has been declining in terms of its share in GDP, capital
formation and employment. At the same time the share of the oil industry,
particularly its manufacturing activities, has been continuously increasing except
where the continuous increase has been suddenly interrupted by various unexpected
events. The relative share of the leading sector vis-a-vis the traditional sector in the
important macroeconomic aggregates reflects the changing structure of the OPEC
member countries. This claim can be easily substantiated by analyzing the sectoral
144
5.3.1.1 Sectoral Analysis of GDP
As already pointed out in the preceding discussion, the economy of the OPEC
member countries is, of late, dominated by economic activities related to the oil
sector. It is, therefore, no surprise that this sector is the largest single contributor to
the gross domestic product. In general, the relative importance of the oil sector in
the OPEC member countries has increased after 1973 when the prices of oil
increased four times and again in 1979 when the prices were doubled. For the
purpose of analyzing the importance of oil sector in the OPEC member countries,
we take a sample of five countries (Gabon, Iraq, Libya, United Arab Emirates and
Venezuela) and divide their GOP into four major sectors namely, agriculture, mining
and quarrying, manufacturing and other sectors. The analysis is focused on the
period of 1970s and 1980s except where the data for these years were not available.
The analysis of sectoral share in terms of constant prices (1980' = 100) for Gabon,
Iraq, Libya, United Arab Emirates and Venezuela is given in Table 5.1.
From the point of view of agricultural share the countries of the sample can
be divided into two groups : (i) countries like Gabon, Iraq and Venezuela where
• Except Venezuela in which case the base is the 1968 prices .
145
agriculture sector has a visible share in the GOP around 5-10 per cent, (ii) countries
like Libya and United Arab Emirates where the share of agriculture has been rather
small (around I to 2 per cent). From the Table 5.1, it is clear that the share of
agriculture sector during the decade of 1970s declin~d in all countries of the first
group. The decline was prominent in Gabon and Iraq which are known to have a
self-sufficient agricultural base. There was a noticeable decline in the case of Libya
also. The general decJine in the share of agriculture in Gabon, Iraq and Libya shows
that during 1970s the rate of growth of agricultural output in these countries was
lower than that of aggregate output. The case of the United Arab Emirates is a
typical one because this island country increased its expenditures on agricultural
activities in an effort to change their deserts into arable land.
Surprisingly, share analysis of the agriculture sector in most of these countries
has shown the opposite trend during the decade of l9H0s. It can be easily explained
in terms of the price crash of oil arising from the world wide recession in
international economy during this period. By the turn of 1980s, as one would expect,
the share of agriculture sector again showed a declining trend in the OPEC member
countries as a ·result of recovery in the international oil market.2.'
23. World Bank, World Development Report, Oxford University Press, 1990.
146
Table 5.1
Distribution of Gross Domestic Product in Some of OPEC Member Countries
among Four Major Economic Sectors (Percentage)
Economic Sectors Years Gross
Agriculture Mining & Manufacturing Other Domestic Quarrying Sectors Product
Gabon
1972 12.424 32.436 7.985 47.155 100.000
1973 11.646 30.875 6.625 50.854 100.000
1974 9.131 47.913 4.123 38.833 100.000
1975 8.817 40.473 4.973 45.737 100.000
1976 5.133 31.632 4.855 58.380 100.000
1977 5.705 35.185 6.623 52.487 100.000
1978 6.695 38.254 7.339 47.712 100.000
1979 5.461 41.934 6.634 45.971 100.000
Iraq
1970 16.000 31.000 9.001 43.999 100.000
1971 15.000 36.000 8.001 40.000 100.000
1972 18.000 29.000 10.000 43.000 100.000
1973 13.000 36.000 10.000 41.000 100.000
1974 8.000 60.000 6.000 26.000 100.000
1975 8.000 51.000 7.000 34.000 100.000
1976 9.000 61.000 8.000 22.000 100.000
1977 8.000 52.000 8.000 32.000 100.000
Contd ...
147
Table 5.1 Contd ...
Economic Sectors Years Gross
Agriculture Mining & Manufacturing Other Domestic Quarrying Sectors Product
1978 8.000 52.000 7.000 33.000 100.000
1979 5.000 59.000 6.000 30.000 100.000
1980 5.000 62.000 4.000 29.000 100.000
1981 9.000 30.000 7.000 54.000 100.000
1982 10.000 25.000 7.000 58.000 100.000
1983 11.000 24.000 8.000 57.000 100.000
1984 13.000 26.000 8.000 53.000 100.000
1985 16.000 26.000 10.000 48.000 100.000
Libya
1975 2.022 74.016 1.121 22.841 100.000
1976 1.883 78.537 1.225 18.335 100.000
1977 1.445 76.693 1.553 20.309 100.000
1978 1.530 72.208 1.762 24.500 100.000
1979 1.500 71.870 1.570 25.060 100.000
1980 1.731 62.599 1.817 33.853 100.000
1981 2.433 49.327 2.498 45.742 100.000
1982 2.425 51.287 2.677 43.611 100.000
1983 2.851 49.576 3.190 44.383 100.000
1984 2.886 45.282 3.630 48.202 100.000
1985 2.772 47.408 4.238 45.582 100.000
Contd ...
148
Table 5.1 Contd ...
Economic Sectors Years Gross
Agriculture Mining & Manufacturing Other Domestic Quarrying Sectors Product
United Arab Emirates
1975 0.696 68.155 0.895 30.254 100.000
1976 0.791 65.302 1.158 32.749 100.000
1977 0.790 58.793 2.699 37.718 100.000
1978 0.933 54.371 3.269 41.427 100.000
1979 0.842 60.687 2.926 35.545 100.000
1980 0.753 64.431 3.816 31.000 100.000
1981 0.903 57.992 6.874 34.231 100.000
1982 1.041 51.611 8.950 38.398 100.000
1983 1.256 45.979 9.262 43.503 100.000
1984 1.363 46.094 9.403 43.140 100.000
1985 1.522 45.504 9.422 43.552 100.000
1986 2.052 32.521 9.492 55.935 100.000
1987 1.996 36.835 9.312 51.857 100.000
1988 2.093 33.626 9.501 54.780 100.000
Venezuela
1970 6.999 19.315 16.321 57.365 100.000
1971 6.847 17.757 16.297 59.099 100.000
1972 6.575 15.760 16.577 61.088 100.000
Contd ...
Table 5.1 Contd ...
Years Agriculture
1973 6.514
1974 6.517
1975 6.576
1976 5.827
1977 5.888
1978 5.951
1979 6.043
1980 6.282
1981 6.183
1982 6.360
1983 6.767
1984 6.913
1985 7.394
1986 7.493
1987 7.571
Economic Sectors
Mining & Quarrying
15.756
13.426
10.236
9.044
8.127
7.861
8.432
8.045
7.865
7.013
6.960
7.191
6.716
6.767
6.723
Manufacturing
16.748
16.759
16.508
17.005
16.490
16.863
17.337
18.008
17.615
18.206
18.960
20.096
20.817
20.848
20.749
Other Sectors
60.982
63.298
66.680
68.124
69.495
69.325
68.188
67.665
68.337
68.421
67.313
65.800
65.073
64.892
64.957
149
Gross Domestic Product
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
100.000
150
The sectoral analysis given in the Table 5.1 clearly shows that mining and
quarrying of crude oil and natural gas has been the dominant and the leading sector
in all the OPEC member countries. The share of this sector in the early 1970s varied
from around 19 per cent in Venezuela to 78 per cent in Libya. However, the
situation changed during the 1980s when the manufacturing activity overtook the
mining and quarrying sector. In general, decline in the share of the mining and
quarrying sector during 1980s can also be explained by collapse in the prices of crude
oil.
As regards the manufacturing activity (by which we mean oil refining and
natural gas processing, petrochemical industries, fertilizer and other allied
industries.), the share of this sector in the GDP of the sample countries has
continuously increased throughout the decades of 1970s and 1980s except country like
Iraq and Gabon where late nationalization of oil industry caused the share of mining
and quarrying sector to be more than the manufacturing and allied industries. The
ever- increasing share of manufacturing sector speaks of the direct and indirect
effects of the oil industry in the development proeess of the OPEC member
countries produced by the backward and forward linkages as made out earlier in the
last chapter. As clear from the table, the share of manufacturing sector increased
in all these countries except Gabon where it has remained constant at a round 7 per
cent. In some countries like Libya and United Arab Emirates the share of this sector
in the early 1970s was as small as 1 per cent, whereas in Iraq and Venezuela it was
about 10 and 20 per cent respectively.
The figures for the share of "other sectors" indicate that it invariably formed
about half of the GDP for all the countries throughout the period of our analysis.
It is not surprising because there are a large number of economic activities included
151
in this sector. Usually, known by the name of tertiary sector, it includes electricity,
gas and water; construction; wholesale and retail trade, restaurants and h<?tels;
transport, storage and communication; financing, insurance, real estate and business
services; and community, social and personal services. More important is the
observation about the ever increasing tendency in the share of this sector. Like
manufacturing, the increase in the share of "other sectors" is indicative of a positive
feature in the economic devet'opment of the OPEC member countries. The
observation of a general increase in the share of manufacturing and "other sectors"
implies that they both grew at a rate which was higher than the growth rate of
aggregate output. Needless to mention that the expansion in the shares of
manufacturing and the "other sectors' is matched by an equivalent decrease in the
shares of agricultural and the mining sectors. This trade-off in the shares of the
traditional and the non-traditional sectors provides us an idea about the continuous
change in the dualistic conditions prevailing in the OPEC member countries.
5.3.1.2 Sectoral Analysis of Capital Formation and Employment
The extent of dualism in the economies of the OPEC member countries and
the repercussions arising therefrom can also be seen by examining the sectoral shares
in the gross fixed capital formation and the total employment of labour. The
analysis for capital formation at constant 1980' prices is given in Table 5.2 whereas
for employment.. it is presented in Table 5.3. Such an analysis is helpful for the
purpose of accounting for changes in the stocks of productive resources (Labour and
Capital) employed in each of the major economic sectors considered above.
*
**
Again, the base for Venezuela is 1968 prices.
Our definitions of capital formation and employment conform to those given in U.N. National Account Statistics and ILO Statistics
152
The availability of data on employment is scanty for the countries in the
sample except for Venezuela where distribution of employment shows a shift away
from agriculture and an increase towards mining and manufacturing. More or less
same picture is available from whatever meager data are available on other
countries. This is in conformity and supplements the sectoral analysis of GDP
carried out in the last section. In other words, the oil sector encompassing mining
and manufacturing activities has been playing the leading and dominant role not only
in terms of sectoral distribution of output, but also in terms of the distribution of
employment in the OPEC member countries.
The implication and interpretation of the distribution of gross fixed capital
formation into major economic sectors, depends to great extent on the meaning of
capital formation itself. However, the sectoral shares of capital formation extracted
from United Nations, National Accounts Statistics indicate that the OPEC member
countries have had different experience regarding the share of the agriculture
vis-a-vis those of mining and manufacturing. Nevertheless, there has been a general
and common tendency of increasing amount of capital formation going into "other
sectors". This may be dNe to the reason that after the strike of general affluence
as a result of hike in the price of oil, most of the OPEC member countries have
concentrated on the development of infrastructural facilities in their respective
economies. The enhancement in the infrastructural facilities such as transportation,
communication, banking, insurance etc., result in an immediate improvement in the
overall efficiency of production.
153
Table 5.2
Distribution of Gross Fixed Capital Formation in Some of OPEC Member Countries
among Four Major Economic Sectors (percentage)
Economic Sectors Years Gross
Agriculture Mining & Manufacturing Other Fixed Quarrying Sectors Capital
Fonnation
Gabon
1972 3.000 25.000 3.000 69.000 100.000
1973 3.000 25.000 3.000 69.000 100.000
1974 3.000 25.000 3.000 69.000 100.000
1975 1.000 15.000 6.000 78.000 100.000
1976 1.000 8.000 6.000 85.000 100.000
1977 2.000 9.000 4.000 85.000 100.000
1978 2.000 10.000 8.000 80.000 100.000
1979 2.000 10.000 8.000 80.000 100.000
Iraq
1970 11.993 3.992 23.000 61.015 100.000
1971 15.006 5.007 22.003 57.984 100.000
1972 13.996 5.995 23.000 57.009 100.000
1973 12.002 11.003 23.996 52.999 100.000
1974 7.998 13.001 20.002 58.999 100.000
1975 7.001 8.000 23.000 61.999 100.000
1976 10.001 12.001 18.999 58.999 100.000
Contd ...
154
Table 5.2 Contd ...
Economic Sectors Years Gross
Agriculture Mining & Manufacturing Other Fixed Quarrying Sectors Capital
Formation
1977 11.999 12.999 20.002 55.000 100.000
1978 10.999 10.001 16.000 63.000 100.000
1979 12.000 9.000 19.001 59.999 100.000
1980 12.999 6.001 12.999 68.001 100.000
1981 11.000 3.999 13.001 72.000 100.000
1982 11.000 4.001 13.001 71.997 100.000
1983 11.000 4.002 12.001 72.997 100.000
1984 12.999 4.000 6.999 76.002 100.000
1985 13.998 10.003 7.002 . 68.997 100.000
1986 13.874 7.194 6.997 71.935 100.000
Libya
1975 13.284 4.037 12.254 70.425 100.000
1976 13.170 3.247 14.740 68.843 100.000
1977 14.691 5.148 12.632 67.529 100.000
1978 13.419 9.627 11.054 65.900 100.000
1979 12.046 7.085 14.855 66.014 100.000
1980 13.503 6.202 17.446 62.849 100.000
1981 13.219 5.574 14.836 66.371 100.000
1982 10.267 6.567 13.425 69.741 100.000
Contd ...
155
Table 5.2 Contd ...
Economic Sectors Years Gross
Agriculture Mining & Manufacturing Other Fixed Qu.arrying Sectors Capital
Formation
1983 11.011 7.699 17.456 63.834 100.000
1984 12.114 8.867 16.658 62.361 100.000
1985 10.794 11.569 16.459 61.178 100.000
United Arab Emirates
1975 1.522 15.728 20.887 61.863 100.000
1976 1.299 11.089 13.061 74.551 100.000
1977 0.947 11.523 14.706 72.824 100.000
1978 1.196 13.028 23.084 62.692 100.000
1979 0.971 14.592 38.260 46.177 100.000
1980 1.857 18.116 33.106 46.921 100.000
1981 1.078 22.702 38.681 37.539 100.000
1982 1.518 12.119 40.398 45.965 100.000
1983 1.356 24.388 24.102 50.154 100.000
1984 1.349 28.161 23.933 46.557 100.000
1985 1.036 28.441 23.303 46.950 100.000
1986 0.848 27.483 20.481 51.188 100.000
1987 0.995 33.327 13.642 53.036 100.000
1988 0.626 33.008 14.923 51.443 100.000
Contd ...
156
Table 5.2 Contd ...
Economic Sectors Years Gross
Agriculture Mining & Manufacturing Other Fixed Quarrying Sectors Capital
Formation
Venezuela
1970 6.649 12.805 13.764 66.782 100.000
1971 7.380 9,951 17.364 65.305 100.000
1972 5.205 6.961 18.977 68.857 100.000
1973 4.454 6.758 15.788 73.000 100.000 ..
1974 5.177 9.465 13.720 71.638 100.000
1975 6.086 4.237 13.244 76.433 100.000
1976 3.372 3.084 16.530 77.014 100.000
1977 3.329 3.960 9.904 82.807 100.000
1978 2.726 5.704 7.829 83.741 100.000
1979 2.842 9.450 4.802 82.906 100.000
1980 3.261 14.213 6.644 75.882 100.000
1981 3.798 17.679 4.073 74.450 100.000
1982 3.036 22.297 3.764 70.903 100.000
1983 2.242 21.757 1.591 74.410 100.000
1984 3.619 19.328 1.839 75.214 100.000
1985 5.838 17.471 3.254 73.437 100.000
157
Table 5.3
Distribution of Employment in Some of OPEC Member Countries among Four
Major Economic Sectors (percentage)
Economic Sectors Years Total
Agricultur~ Mining & Manufacturing Other Employ-Quarrying Sectors ment
Gabon
1970 18.254 8.413 14.762 58.571 100.000
1971 17.231 9.385 14.154 59.230 100.000
1972 18.248 10.219 13.285 58.248 100.000
1973 N.A. N.A. N.A. N.A. N.A.
1974 N.A. N.A. N.A. N.A. N.A.
1975 14.064 6.272 10.512 69.170 100.000
1976 13.266 6.129 12.102 68.503 100.000
1977 13.564 4.834 12.338 69.264 100.000
Iraq
1970 55.280 0.638 5.984 38.098 100.000
1971 55.338 0.637 6.171 37.854 100.000
1972 55.526 0.654 6.164 37.656 100.000
1973 55.767 0.670 6.154 37.409 100.000
Libya
1970 27.664 2.869 4.815 64.652 100.000
1971 27.669 3.094 4.662 64.575 100.000
. 1972 26.168 2.951 4.693 66.188 100.000
Contd ...
158
Table 5.3 Contd ...
Economic Sectors Years Total
Agriculture Mining & Manufacturing Other Employ-Quarrying Sectors ment
1973 24.066 2.843 4.813 68.278 100.000
1974 21.640 2.685 4.825 70.850 100.000
1975 19.658 2.599 4.859 72.884 100.000
1976 19.271 2.525 5.104 73.100 100.000
1977 18.941 2.510 5.451 73.098 100 .. 000
1978 19.128 2.639 6.130 72.103 100.000
United Arab Emirates
1975 8.010 1.456 5.964 84.570 100.000
1980 5.786 1.146 7.246 85.822 100.000
1985 6.167 1.518 8.153 84.162 100.000
Venezuela
1975 19.934 1.339 15.366 63.361 100.000
1976 18.805 1.178 15.867 64.150 100.000
1977 17.556 1.409 16.242 64.793 100.000
1978 16.023 1.219 16.970 65.788 100.000
1979 15.405 1.357 16.378 66.860 100.000
.1980 15.015 1.480 15.893 67.612 100.000
1981 14.570 1.393 15.989 68.148 100.000
1982 14.460 1.518 15.690 68.332 100.000
Contd ...
Table 5.3 Contd ...
Years Agriculture
1983 14.H31
1984 16.077
1985 16.1H1
1986 15.506
1987 14.297
1988 13.709
1989 13.281
Economic Sectors
Mining & Quarrying
1.493
1.448
1.349
1.141
1.010
1.062
1.038
Manufacturing
14.78H
14.762
15.479
16.274
17.176
17.113
17.199
N.A. stands for data not available.
Other Sectors
68.888
67.713
66.991
67.079
67.517
68.116
68.482
159
Total Employment
100.000
100.000
100.000
100.000
100.000
100.000
100.000
The sectoral analysis of GOP, capital formation and employment given in
Tables 5.1, 5.2, and 5.3, reveal the shifts in the shares of agriculture, mining and
quarrying, manufacturing and services sector The shares of agriculture and mining
and quarrying in the total output as well as total employment declined all along in
the period of our study in the all the OPEC member countries. During the same
period the distribution of capital formation presented a slightly different picture.
The share of mining and quarrying to gross capital formation increased for the
whole sample, while the share of agriculture, manufacturing and services sector
registered a decline in relation with the mining and quarrying. The observation
regarding a decline in employment figures in the mining and quarrying sector may
be viewed in a critical manner. But this may not be surprising in light of the highly
160
capital intensive nature of the oil industry not only in the OPEC member countries
but any where in the world. It may be also noted that due to high intensity of capital
and the requirement of high skills of labour, wages in the oil industry tend to become
very high and thus the existence of dual techniques of production results in skewed
distribution of income.
In order to have a complete picture of the nature and extent of economic
dualism in the OPEC member countries, it is also necessary to take into account the
changes in factor productivities and factor intensities. The measurement of intensity
and productivity of labour and capital is not a simple task. The complication in their
measurement arises because an increase in the output may be attributed either to
arise in the efficiency or to arise in the intensity of the factor under consideration.
5.3.1.3 Sectoral Analysis of Factor Productivity and Factor Intensity
The question of the technique of production employed in the various sectors
is not easy to be analyzed. Even then, some features of the dualistic economies can
be understood with the help of ratios V /K, V /Land K/L where K,L and V represent
capital, labour and output respectively. In this section, we examine the pattern or
the movement of capital and labour productivities (more precisely the ratios defined
as output per unit of capital and per unit of labour respectively). Figures of these
ratios for the sample countries for the decades of 1970s and 1980s are given in
Tables 5.4 and 5.5 respectively. As expected, the output per unit of labour in
agriculture sector has been on the decline. Same is true for the output per unit of
capital in agriculture sector. This is quite an expected result. Since the total
amount of land in agriculture sector is fixed, the increase in other factors of
production soon results in the diminishing returns. As there is little possibility of the
161
Table 5.4
Product Per Worker in Some of OPEC Member Countries in
Four Major Economic Sectors
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
Gabon
1972 3948.424 18408.157 3485.890 4694.890 5799.417 (0.681) (3.174) (0.601) (0.810)
1973 N.A. N.A. N.A. N.A. N.A.
1974 N.A. N.A. N.A. N.A. N.A.
1975 5159.509 53040.211 3888.538 5435.115 8219.653 (0.628) (6.453) (0.473) (0.661)
1976 3861.532 51507.215 4003.372 8505.076 9979.751 (0.387) (5.161) (0.401) (0.852)
1977 3340.207 57806.418 4263.409 6018.208 7941.927 (0.421) (7.279) (0.537) (0.758)
Iraq
1970 0.675 113.263 3.507 2.693 2.332 (0.289) (48.569) (1.504) (1.155)
1971 0.655 140.418 3.131 2.552 2.415 (0.271) (58.144) (1.296) (1.057)
1972 0.730 99.914 3.654 2.572 2.253 (0.324) (44.347) (1.622) (1.142)
1973 0.605 139.389 4.214 2.842 2.593 (0.233) (53.756) (1.625) (1.096)
Contd ...
162
Table 5.4 Contd ...
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
Libya
1975 1.086 300.818 2.438 3.311 10.564 (0.103) (28.476) (0.231) (0.313)
1976 1.170 372.395 2.874 3.006 11.972 (0.098) (31.105) (0.240) (0.251)
1977 0.952 381.484 3.556 3.469 12.484 (0.076) (30.558) (0.285) (0.278)
1978 1.014 346.721 3.641 4.305 12.669 (0.080) (27.368) (0.287) (0.340)
United Arab Emirates
1975 15.887 8556.190 27.442 65.404 182.826 (0.087) (46.800) (0.150) (0.358)
1980 26.422 11414.032 106.913 73.332 203.018 (0.130) (56.222) (0.527) (0.361)
1985 39.921 4851.702 186.990 83.731 161.807 (0.247) (29.985) (1.156) (0.517)
Venezuela
1975 6.064 140.567 19.749 19.345 18.382 (0.330) (7.647) (1.074) (1.052)
1976 5.863 145.277 20.278 20.092 18.921 (0.310) (7.678) (1.072) (1.062)
1977 6.480 111.443 19.615 20.722 19.320 (0.335) (5.768) (1.015) (1.073)
1978 7.101 123.311 18.999 20.148 19.120 (0.371) (6.449) (0.994) (1.054)
Contd ...
163
Table 5.4 Contd ...
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
1979 7.394 117.121 19.951 19.223 UU\48 (0.392) ( 6.214) ( 1.059) (1.020)
1980 7.476 . 97.104 20.247 17.884 17.g7o (0.418) (5.434) ( 1.330) ( 1.001)
1981 6.750 96.778 17.524 15.950 15.906 (0.424) ((1.084) ( 1.102) ( 1.003)
1982 6.853 71.987 18.079 15.601 15.581 (0.440) (4.620) ( 1.160) ( 1.00 I)
1983 6.681 68.287 18.774 14.308 14.643 (0.456) (4.663) ( 1.282) (0.977)
1984 6.192 71.501 19.603 13.993 14.400 (0.430) ( 4.965) ( 1.361) (0.971)
1985 6.426 70.000 18.912 13.660 14.063 (0.457) ( 4.978) (1.345) (0.971)
1986 6.870 84.286 18.213 13.753 14.216 (0.483) (5.929) ( 1.281) (0.967)
1987 7.350 92.424 16.769 13.355 13.881 (0.530) (6.658) ( 1.208) (0.962)
Notes: Figures in parentheses indicate to the sectoral ratios. N.A. stands for data not available.
164
Table 5.5
Product Per Gross Fixed Capital Formation in Some of OPEC Member Countries
in Four Major Economic Sectors
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
Gabon
1972 11.090 3.475 7.128 1.830 2.678 (4.141) (1.298) (2.662) (0.683)
1973 15.673 4.986 8.916 2.976 4.037 (3.882) (1.235) (2.209) (0.737)
1974 7.286 4.588 3.290 1.347 2.394 (3.043) (1.916) ( 1.374) (0.563)
1975 17.637 5.398 1.658 1.173 2.000 (8.819) (2.699) (0.829) (0.587)
1976 9.233 7.112 1.455 1.235 1.799 (5.132) (3.953) (0.809) (0.686)
1977 6.232 8.542 3.618 1.349 2.185 (2.852) (3.909) (1.656) (0.617)
1978 8.558 9.780 2.345 1.525 2.557 (3.347) (3.825) (0.917) (0.596)
1979 9.322 14.316 2.831 1.962 3.414 (2.731) (4.193) (0.829) (0.575)
Iraq
1970 13.026 75.824 3.821 7.041 9.764 (1.334) (7.766) (0.391) (0.721)
1971 9.887 73.088 3.597 6.823 9.891 ( 1.000) (7.389) (0.364) (0.690)
1972 8.361 31.448 2.827 4.904 6.501 (1.286) (4.837) (0.435) (0.754)
Contd ...
Table 5.5 Contd ...
Years Agriculture
1973 6.6X5 (l.OX3)
1974 3.XX1 ( 1.000)
1975 4.013 (1.143)
1976 3.304 (0.900)
1977 2.442 (0.667)
1978 2.993 (0.727)
1979 1.389 (0.417)
1980 1.754 (0.385)
1981 2.996 (0.818)
1982 4.056 (0.909)
1983 4.191 (1.000)
1984 5.117 (1.000)
1985 7.278 (1.143)
Economic Sectors
Mining & Quarrying
Manufacturing
20.193 2.572 (3.272) (0.417)
17.907 1.164 (4.615) (0.300)
22.389 1.069 (6.375) (0.304)
18.661 1.546 (5.083) (0.421)
14.654 1.465 (4.001) (0.400)
21.399 1.801 (5.200) (0.438)
21.849 1.052 (6.555) (0.316)
47.103 1.403 (10.332) (0.308)
27.473 1.971 (7.502) (0.538)
27.882 2.403 (6.249) (0.539)
25.138 2.794 (5.998) (0.667)
33.262 5.848 (6.500) (1.143)
16.552 9.093 (2.599) ( 1.428)
Other Sectors
4.775 (0.774)
1.710 (0.441)
1.926 (0.548)
1.369 (0.373)
2.131 (0.582)
2.156 (0.524)
1.667 (0.500)
1.944 (0.426)
2.747 (0.750)
3.595 (0.806)
3.273 (0.781)
3.568 (0.697)
4.430 (0.696)
165
Economy Wide
6.172
3.880
3.512
3.671
3.663
4.115
3.333
4.559
3.662
4.462
4.191
5.117
6.368
Cont1L.
166
Table 5.5 Contd ...
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
Libya
1975 0.705 84.982 0.424 1.503 4.635 (0.152) (18.335) (0.091) (0.324)
1976 0.746 126.178 0.434 1.391 5.216 (0.143) (24.191) (0.083) (0.267)
1977 0.531 80.489 0.664 1.625 5.403 (0.098) (14.897) (0.123) (0.301)
1978 0.591 38.863 0.826 1.926 5.181 (0.114) (7.501) (0.159) (0.372)
1979 0.628 51.121 0.533 1.913 5.040 (0.125) (10.143) (0.106) (0.380)
1980 0.548 43.127 0.445 2.302 4.273 (0.128) (10.093) (0.104) (0.539)
1981 0.576 27.715 0.527 2.158 3.132 (0.184) (8.849) (0.168) (0.689)
1982 0.915 30.261 0.773 2.423 3.875 (0.236) (7.809) (0.199) (0.625)
1983 1.113 27.692 0.786 2.990 4.300 (0.259) (6.440) (0.183) (0.695)
1984 1.074 23.027 0.983 3.485 4.509 (0.238) (5.107) (0.218) (0.773)
1985 1.581 25.232 1.585 4.588 6.158 (0.257) (4.097) (0.257) (0.745)
United Arab Emirates
1975 1.504 14.255 0.141 1.609 3.289 (0.457) (4.334) (0.043) (0.489)
Contd ...
167
Table 5.5 Contd ...
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
1976 1.928 18.640 0.280 1.390 3.165 (0.609) (5.889) (0.088) (0.439)
1977 2.279 13.937 0.501 1.415 2.732 (0.834) (5.101) (0.183) (0.518)
1978 1.764 9.432 0.320 1.494 2.260 (0.781) ( 4.173) (0.142) (0.661)
1979 2.432 11.652 0.214 2.157 2.802 (0.868) ( 4.158) (0.076) (0.770)
1980 1.477 12.954 0.420 2.406 3.642 (0.406) (3.557) (0.115) (0.661)
1981 3.259 9.930 0.691 3.546 3.888 (0.838) (2.555) (0.178) (0.912)
1982 2.439 15.141 0.788 2.970 3.555 (0.686) ( 4.259) (0.222) (0.835)
1983 3.035 6.181 1.260 2.844 3.279 (0.926) ( 1.885) (0.384) (0.867)
1984 3.490 5.650 1.356 3.198 3.452 (1.011) ( 1.637) (0.393) (0.926)
1985 4.651 6.385 1.614 3.702 3.991 ( 1.165) (1.600) (0.404) (0.928)
1986 8.404 4.110 1.610 3.795 3.473 (2.420) ( 1.183) (0.464) (1.093)
1987 8.747 4.965 2.974 4.260 4.357 (2.008) (1.140) (0.683) (0.978)
1988 14.213 4.331 2.707 4.528 4.252 (3.343) (1.019) (0.637) (1.065)
Contd ...
168
Table 5.5 Contd ...
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
Venezuela
1970 4.868 6.976 5.848 3.972 4.625 (1.053) ( 1.508) (1.186) (0.859)
1971 3.960 7.617 4.007 3.863 4.269 (0.928) (1.784) (0.939) (0.905)
1972 4.820 8.640 3.333 3.385 3.816 (1.263) (2.264) (0.873) (0.887)
1973 5.422 8.642 3.932 3.096 3.707 ( 1.463) (2.331) (1.061) (0.835)
1974 5.074 5.718 4.924 3.562 4.031 ( 1.259) (1.419) (1.222) (0.884)
1975 3.677 8.222 4.242 2.969 3.403 ( 1.081) (2.416) ( 1.24 7) (0.872)
1976 4.979 8.449 2.964 2.549 2.881 (1.728) (2.933) ( 1.029) (0.885)
1977 4.217 4.893 3.970 2.001 2.384 (1.769) (2.052) (1.665) (0.839)
1978 5.112 3.228 5.045 1.939 2.342 (2.183) ( 1.378) (2.154) (0.828)
1979 6.312 2.649 10.717 2.441 2.968 (2.127) (0.893) (3.611) (0.822)
1980 6.554 1.926 9.223 3.035 3.403 (1.926) (0.566) (2.710) (0.892)
1981 5.362 1.465 14.248 3.024 3.294 (1.628) (0.445) ( 4.325) (0.918)
1982 7.218 1.084 16.662 3.324 3.445 (2.095) (0.315) ( 4.837) (0.965)
Contd ...
169
Table 5.5 Contd ...
Economic Sectors Years Economy·
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
1983 13.323 1.412 52.610 3.993 4.414 (3.018) (0.320) (11.919) (0.905)
1984 10.253 1.997 58.630 4.695 5.367 (1.910) (0.372) (10.924) (0.875)
1985 6.420 1.948 32.425 4.492 5.069 (1.267) (0.384) (6.397) (0.886)
Note : Figures in parentheses indicate to the sectoral ratios.
scale economies to be obtained, the average productivity of labour and capital falls
as is clear from the results given in the table above. On the other hand, the
application of increasing amount of labour and capital in the mining, manufacturing
and the service sector leads to availability of the internal and external economies.
The net result is increase in the average factor productivities in these sectors. It can
be observed from the above tables that the mining and quarrying sector has shown
the highest output per unit of labour in all the countries. Similarly, agriculture sector
represents the lowest improvement in the output per unit of labour. Similarly,
highest and the lowest growth in terms of output per unit of capital are also shown
by mining and quarrying and agriculture sectors respectively.
The pattern of changes in output per unit of labour and output per unit of
capital as seen above should not be equated with changes in productivity per se. In
general, when more than one factor is involved in a given production function, the
productivity (averaged and marginal), of any one factor can be measured only by
hol.ding the other factors constant. In reality, however, what we observed is most
170
likely the change in total output caused by proportionate changes in all the input
factors. As long as production function is linearly homogenous (such as the
Cobb-Douglas function), the average total productivity caused by all the factors and
the marginal productivity caused by any single factor will be the same.
In order that our findings of output per unit of labour and output per unit of
capital are applicable to overall productivity, it is necessary that factor proportions
(the K/L ratio) remains relatively constant over the period of analysis. This leads
us to another analytical problem about the measurement of factor intensity. The
intensity of labour, for example, can be measured in terms of per unit of time, per
unit of output or per unit of capital. The last of these definitions is the one which
is commonly used in empirical research. Also, in the publications of economic
development, labour intensity (L/K or L/V ratio) is often deduced indirectly from
the degree of capital intensity (K/L or K/V ratio). This indirect approach to the
measurement of factor intensity implies that production functions are of such type
that an increase in K/L and K/V ratios satisfactorily reflects a decline in L/K and
L/V ratios.2A
The state of technology employed in the major economic sectors and the
quality of dynamism infused by the leading sector into the rest of the economy can
be examined with the help of the factor intensities. The data base for the
capital-labour ratio for the period of our study (1970-90) was scarcely available for
all the countries of the sample except Venezuela. However, the figures of K/L ratio
given in Table 5.6 strongly suggested the existence of dualism first between
24. For a detailed discussion on the concept and measurement of intensity of labour and capital see, A.S. Bhalla, Technology and Employment in Industry. A case study approach, Third Edition, copyright ILO, 1985, p. 17.
171
Table 5.6
Gross Fixed Capital Formation Per Worker in Some of OPEC Member Countries
in Four Major Economic Sectors
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
Gabon
1972 356.024 5297.957 489.044 2565.328 2165.590 (0.164) (2.446) (0.226) (1.185)
1973 N.A. N.A. N.A. N.A. N.A.
1974 N.A. N.A. N.A. . N.A. N.A .
1975 292.535 9826.648 2345.185 4633.457 4108.904 (0.071) (2.392) (0.571) (1.128)
1976 418.234 7242.354 2750.699 6884.541 5548.350 (0.075) ( 1.305) (0.496) ( 1.241)
1977 535.952 6767.373 1178.462 4460.665 3634.869 (0.147) ( 1.862) (0.324) (1.227)
Iraq
1970 0.052 1.494 0.918 0.383 0.239 (0.218) (6.251) (3.841) (1.603)
1971 0.066 1.921 0.871 0.374 0.244 (0.270) (7.873) (3.570) (1.533)
1972 0.087 3.177 1.293 0.525 0.346 (0.251) (9.182) (3.737) (1.517)
1973 0.090 6.903 1.638 0.595 0.420 (0.214) (16.436) (3.900) (1.417)
Contd ...
172
Table 5.6 Contd ...
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
Libya
1975 1.540 3.540 5.748 2.202 2.279 (0.676) ( 1.553) (2.522) (0.966)
1976 1.569 2.951 6.628 2.162 2.295 (0.684) (1.286) (2.888) (0.942)
1977 1.792 4.740 5.355 2.135 2.311 (0.775) (2.051) (2.317) (0.924)
1978 1.715 8.922 4.409 2.235 2.445 (0.701) (3.649) (1.803) (0.914)
United Arab Emirates
1975 10.563 600.238 194.651 40.656 55.579 (0.190) (10.800) (3.502) (0.731)
1980 17.891 881.129 254.668 30.474 55.739 (0.321) (15.808) ( 4.569) (0.547)
1985 8.584 759.830 115.885 22.618 40.545 (0.212) (18.740) (2.858) (0.558)
Venezuela
1975 1.649 17.097 4.656 6.516 5.402 (0.305) (3.165) (0.862) (1.206)
1976 1.178 17.194 6.842 7.884 6.567 (0.179) (2.618) (1.042) ( 1.201)
1977 1.536 22.776 4.941 10.356 8.103 (0.190) (2.811) (0.610) (1.278)
1978 1.389 38.201 3.766 10.391 8.164 (0.170) (4.679) (0.461) (1.273)
Contd ...
173
Table 5.6 Contd ...
Economic Sectors Years Economy
Agriculture Mining & Manufacturing Other Wide Quarrying Sectors
1979 1.171 44.221 1.862 7.874 6.350 (0.184) (6.964) (0.293) (1.240)
1980 1.141 50.406 2.195 5.893 5.251 (0.217) (9.599) (0.418) (1.122)
1981 1.259 66.043 1.230 5.275 4.829 (0.261) (13.676) (0.255) (1.092)
1982 0.950 66.433 1.085 4.693 4.522 (0.210) (14.691) (0.240) (1.038)
1983 0.501 38.355 0.357 3.583 3.317 (0.151) (11.563) (0.108) (1.080)
1984 0.604 35.806 0.334 2.980 2.683 (0.225) (13.346) (0.124) (1.111)
1985 1.001 35.927 0.583 3.041 2.774 (0.361) (12.951) (0.210) (1.096)
Notes: Figures in parentheses indicate to the sectoral ratios. N.A. stands for data not available.
agriculture and mining and quarrying and secondly between agriculture and
manufacturing. Strikingly, the capital-labour ratio in the mining and quarrying sector
was dis-proportionately high compared to the manufacturing and tertiary sector in
the all countries of the sample. This gives an indication of the OPEC member
countries priorities in the continuous upgradation of the process of extracting oil and
gas e.g., beginning with exploration, drilling, exploitation, production, oil refining and
gas processing, in addition to transport and ending with the marketing of oil and gas
174
and their products. Except in Gabon, the capital intensity of the manufacturing sector
was found to be much higher when compared with the economy wide aggregate of
the K/L ratio. Putting together the observations given above it can be concluded
that the economies of the OPEC member countries continue to exhibit a strong
tendency of dualism between agriculture sector and the oil industry. The "other
sectors" segments of these economies showed a level of K/L ratio not much deviating
from the aggregate level. The interrelationship of the four major economic sectors
and their repercussion for the economic development of OPEC member countries
have already been dealt with elsewhere.
In this chapter, we have examined the concept of economic dualism both in
historical context and in relation to the experience of the OPEC member countries.
In the light of development experience of present MDCs, dualism often implies the
coexistence of the modern and traditional sector in which the latter plays significant
role by generating surpluses necessary for the process of economic development.
Incorporated in the writings of Lewis, Fei-Ranis, Jorgenson, etc., the development
activity in this approach is endogenous. On the other hand, models of unbalanced
growth, such as those advocated by Hirschman are based on the principle of
simultaneous existence of the modern and traditional sectors, but in this case the
former is responsible for deriving the economy towards the stage of sustained growth.
This approach of economic dualism can be called as exogenous. In both the cases the
modern and the traditional sectors embody dual characteristics in terms of their roles
towards GOP, capital formation, employment, factor productivity and factor intensity.
Keeping this framework in mind, we have analyzed the state of economic dualism in
the OPEC member countries. Due to paucity of data, we have confined our
observation to the period of 1970-90. Our analysis shows that the member countries
175
of OPEC experienced varying and mixed response to economic development in terms
of the endogenous and exogenous approaches of dualism mentioned above. A few
countries such as Gabon, Iraq and Venezuela which had a rich heritage of agriculture
can be put in the endogenous category of dualism. Besides, all the OPEC member
countries had a large oil sector which was invariably foreign dominated and
capital-intensive. Hence, the oil sector has been working as a leading sector
providing growth stimuli to rest of the economy. It is no wonder, therefore, that the
sh:tre of oil sector in GOP and employment has been rising continuously as already
demonstrated by our analysis. The process of transformation of the OPEC member
countries is also evidenced by the changing patterns of productivity and intensity of
labour and capital respectively. Analysis of economic dualism shows that the
traditional and the modern sectors though interdependent, are far from being
integrated into their respective economies.
In the end, we should caution that oil being a primary commodity is subject
to the uncertainties of market. This has been amply clear by the adverse effects
experienced by the OPEC member countries caused by the worldwide recession of
early 1980s. In such situations the role of national governments becomes very
important. Special efforts have to be made not only to protect these economies from
the . vagaries (including the external influence on domestic output, employment,
investment etc.) but also to ensure that the benefits of oil sector are completely
funneled into the domestic economy.