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Volume :4 Issue : 13 1978      Add To Cart                                                                    Download

PETRODOLLARS & REGIONAL ECONOMIC DEVELOPMENT

Auther : Dr. Ibrahim Oweiss

 

         The author wants to demonstrate in this paper that the use of petrodollars in domestic and especially regional development is the best course the Middle East OPEC countries could pursue to maximize their objective function in ameliorating national, regional and international economic welfare.

         The high rise of the price of oil at the turn of 1973.1974 led to the accumulation of petrodollar surpluses in some of the oil states. 65% of the total OPEC petrodollar surplus in 1974 accrued to the Arab countries of the Arabian Gulf, the largest amount to Saudi Arabia.  So, the problem facing the OPEC investor was how to maintain the real value of his earning and maximize the profits if possible.  The OPEC investor moved successfully into the international banking, finance and investment markets and behaved in the short run as an economic man, first as a capital owner, then as banker and lender (acquiring all necessary legal skills) and finally as a portfolio investment manager.  Yet in the longer run, the OPEC investment problem is compounded by the great financial responsibility of the portfolio managers and by the regulatory problems within both the Eurodollar markets and the international financial institution.  So, for the short and the longer run, only financing regional development will create the necessary framework for increasing the domestic and regional absorptive and productive capacities and thus maintain the real value of the OPEC earnings.  This can only happen in a regional context, through routing surpluses in the form of aids and loans through international financial organizations and Arab funds, through guaranteeing loans for the less credit-worthy Arab countries, through promoting domestic and regional industry and infrastructure.  The small oil states for example cannot be self sufficient with all the development and infrastructure possible since major development projects can only be economical within a regional context.  Financing regional development will help promote regional economic integration.  Capital in the oil states can be complemented by the unlimited supply of labor and skill in Egypt for example and vice versa.

         A certain level of regional development means raising the living standards, increasing the absorptive and productive capacities, promoting national and regional welfare, securing social and political stability.  These are all factors which help creating social, political and economic transformation in the region which in the longer run will guarantee real value of OPEC states and thus domestic regional and international welfare can be ameliorated.

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