The oil economy of Iraq : structure and development experience during the period 1953-1974 and future optimal growth within the framework of OPEC
Oil-rich developing economies have in their oil a valuable asset which could enable them to achieve a transformation to economic maturity largely unhindered by the constraints of foreign exchange and/or domestic savings. Yet the existence of such an asset creates tendencies that would lead to 'too-fast' depletion rates and structural distortions which, together, threaten the viability of these economies in the long run. The question of optimal growth with exhaustible resources is, therefore, of considerable relevance to such economies. This thesis attempts to assess the past impact of oil on the Iraqi economy and to study its future optimal growth. The former issue is dealt with through an analysis of the structure and the general trends in the development of the Iraqi economy during the period 1953-1974. The study reveals a growing structural imbalance manifested by the growth of Services at the expense of Commodity sectors, a failure to diversify exports, and an increase in dependence on oil revenues. The problem of optimal growth is examined using a linear programming input-output type model, the two main features of which are (1) an explicit recognition of Iraq's dependence on an exhaustible resource (oil) as a source of foreign exchange and savings, (2) the use of optimal oil pricing trajectories for the Organisation of Petroleum Exporting Countries as a group for the valuation of Iraq's oil exports. Apart from determining Iraq's optimal oil depletion path, the model also throws some light on the way Iraq's optimal growth path is affected by such factors as OPEC's pricing strategies, Iraq's absorptive capacity as well as by the requirements of some important economic development objectives, such as achieving self sufficiency in foreign exchange after oil is completely exhausted.