Oil share in economy

What does it mean to be an oil producing country? Middle east countries are well known as oil producers. It is widely believed that these countries are very rich and get enormous amounts of money by exporting oil. In year 2004 all Middle East countries had the GDP of 483 billion, about 1.32% of world production. It is far less than any developed country and less than India, Korea, Mexico, Australia, Brazil and Russia and about 1.8 times that of Turkey. The table below shows the percentage of fuel exports in GDP for the countries that this ratio is more than 10 percent. It shows that in main oil producing countries about half of the GDP comes from oil (Data from the World Bank). For bigger countries like Iran and Saudi Arabia this ratio is smaller. And the important thing is that this ratio grows smaller in time. The other parts of economy in these countries grow faster than oil revenue. In Iran the share of oil (chart below, data from Central Bank of Iran) depends on external forces. When the oil price is high the share is high. When there is crisis like war or the price is low, the share is low. It probably hurt the economy when there is such a huge shock in economy. Especially considering the point that it is the government that gets this money, this shock can widely disturb the economic policy. Interesting fact to investigate more.

Population in Arab Countries

In my posting two weeks ago I figured out that main oil producing Arab countries, Qatar, United Arab Emirates, Saudi Arabia and Kuwait had a considerable negative per capita annual growth rate during 28 years 1975-2003 and still they are among the very rich countries. This needs explanation. One explanation can be the population structure.
Following is the data for GDP average annual growth rate and population average annual growth rate respectively for 1975-2003:
Kuwait: 1.53, 3.14 – Qatar: N.A., 5.33 – Saudi Arabia: 2.33, 4.26 – United Arab Emirates: 4.97, 7.71- and for comparison, Iran: 2.28, 2.51, Turkey: 3.74, 2.05
It is clear that whatever was the GDP growth rate, the population has absorbed the growth such that among the above countries all of them except Turkey had negative growth rate. It seems reasonable for Arab countries to increase the population for they were very low populated areas. In 1950 total population of four above Arab countries was about 4.1 million, 3.8 of which in Saudi Arabia. In 2003 total population reached to 30.6 million, 25 million of them in Saudi Arabia.
It seems that the optimal policy regarding population and growth can not be independent of starting situation. Arab countries needed human beings to improve their economic situation. Negative per capita rate in these countries does not matte as long as they can catch up in future. They imported population. A look at the population pyramid of these countries shows that the ratio of middle age male to female in these countries is very high. (data available at U.S. Census Bureau at http://www.census.gov/). Many young and middle age workers from India, Bangladesh, Pakistan, South Asia and Iran are now working in these countries. The picture below is the population pyramid for United Arab Emirates as an example. There are so many extra men than women in age 35 to 65. Considering that biologically the number of male and female should be almost the same, it should be the result of immigration policy in these countries.
I wanted to write about Iran, but it ended here. I let the questions to come to my mind freely. They are interesting and I don’t want to block them.
I’ll try to post some notes on the structure of economy in these countries and compare them and some other countries with Iran in future.

Comments on the comparison of Iran and other countries

Dr. Ali Toosi, the second member of this blog (circle), has some comments on the previous posting, which I bring here with my wordings. Thanks to him.
He argues, correctly, that “I think the appropriate GDP figure to look at for comparison is per capita GDP (ppp)”. I agree. When the subject to compare is the welfare level, it is better to use the PPP per capita GDP. Based on this measure, oil producing Arab countries are doing better than Iran, but Turkey and especially Lebanon are behind Iran. Also the average of Latin America & Caribbean as well as central & East Europe are comparable with Iran and in the same range of $6000-$8000.
It would be interesting to compare these two measures. As a general observation, the difference between these two measures is less in richer countries. In high-income countries the PPP per capita income is less than the usual one. But when a person from high PPP gap (mostly poor) country wants to buy something from a low PPP gap country (mostly rich), the measure can not PPP per capita GDP. Here we want to compare the welfare level and as Ali said PPP is better measure (we leave it for future postings to compare these two measures).
The second point raised by Ali is about the negative growth rate of Saudi Arabia and Kuwait (and maybe Emirate and Qatar, I’ll try to find data on them). It might be, he argues, because of “Dutch disease” or “resource curse”. I leave it to him to find it out and I’ll try to figure out how was the structure of population and GDP in these countries.
The third point is the impression one gets when he sees the 2.1 percent growth rate. Ali propose something like this: "With 2.1 percent growth rate [between 1990-2003], it takes 34 years todouble the per capita income. Long time! Iran needs a growth ratecomparable to East Asia & Pacific ( in that case it would take about 13years to double its GDP) or if it can not realistically achieve that, atleast it should try to grow at a rate close to the average growth ratefor Middle Income countries ( in that case it would take about 28 yearsto double its GDP). "
This points are ture but let me look from the pessimistic point of view. Once one country fall behind, it is very hard to catch up. We need a growth rate even more than that of East Asia to have a prosperous situation in future. East Asia and Pacific grew with a rate of 5.9 percent for 28 years (during which Iran had a negative rate of – 0.3 percent). These countries had a growth rate of 5.4 percent during 1990-2003 (Iran had a 2.1 percent rate). It means it only takes 13 years to double per capita income. And remember in 28 years, 1975-2003 their per capita income has been multiplied by 5 (during the years that ours multiplied by 0.42!). Iran needs a higher growth rate than what it has for a long long time.
Let me add some optimistic points. The starting year of comparison is 1975, one of the years that Iran experienced a very high oil revenue (before recent sky rocketing of oil price). Based on the Human Development Report 2005, the highest value for per capita GDP of Iran was 8443 PPP US$ in year 1976. This makes the 1975-2003 worse than any other period for comparison. Also there was a revolution and a war in the first part of this period. Add to this the high growth rate for population (3.9 percent average annual rate for the decade 1976-1986) that changed the structure of the population. It increased the “consumers” without any increase in the “producers” and resulted in high dependency rate. (for sure I’ll post something on the population structure of Iran). Now the children borne on the first part of the period are in the age of production and let’s hope there will not be any war and revolution in foreseeable future. Then there are reasons for being optimistic.

Iran, its neighbors, the world and economy

To begin with, I prefer to figure out where does Iran stand among its neighbors and in the world. I found some data from Human Development Reports 2005 and 2004 and the World Bank site. Here is the table of countries around Iran and some regions in the world ranked by per capita GDP (US $ 2003). [I dont know how to post a table. I just used paint brush to convert it to a picture!] It is clear that Iran is a middle class country. An average one in Middle Income Class. Most of its neighbors are doing better than it. Most of them are oil producing countries, like Iran with less population and more oil. The countries without oil are in bad conditions, except for Turkey and Lebonan and of course Israel. Latin America and central Europe are doing better than Iran. The world is doing much better as well.
The main reason for this situation was the negative average growth rate for 28 years (1975-2003). During this time, the world grew with a rate of 1.4 percent per year. Iran was going back by 0.3 percent. The other regions with negative growth were low income countires, Central Europe (because of their transition from a planned economy), some rich arab countries (because of their enourmosly high oil revenue). This was the effect of thr Revolution (1975) and the eight years war with Iraq (1980-88). Afeter that, Iran's economy began to grow, but not so fast. With 2.1 percent growth rate, it takes 34 years to double the per capita income. Long time!

Why?

IRPD, Institute for Research on Planning and Development was an institute where I spent eight years, from 1994 to 2002, as student and then as researcher/lecturer. There, I started to study Economics, the job that I am still doing. This weblog is my imaginary IRPD. It is an attempt to think and write about economics.
I'll try to post once a week, most likely on Tuesdays. I'll write the postings in English just as a practice. The ideal form of this weblog is the weblog by Gary Becker and Richard Posner: http://www.becker-posner-blog.com/ Of course it won't be even close to it. But at least I can try!
The focus of the postings will bias toward Iran's economy. I'll only post something that I have reliable data and some question about it. I'll try to answer the questions but it is not the main purpose. Good questions and precise information is the first purpose. If the blog survives, then I'll have a set of questions and data to think about.
This is a blog to practice Economics. It may have lots of errors and shortcomings (particularly because of my inability to write fluently in English). But again it is a practice.
If I can continue it for a reasonable time I'll improve the site, and especially I'll invite the other IRPD members to join the Circle!