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Abstract

Kuwait is a well endowed, small and open economy. In this economy the Government is the owner of the bulk of the wealth. Its wealth comes basically from underground oil and oil-accumulated assets. Since there is virtually no tax, the government influences economic activity through its expenditure and expenditure is determined by returns from its wealth. Moreover, the country depends heavily on imports. The structure of the model contains these features and the inherent dichotomy of Oil vs. Non-oil, and Kuwaiti vs. Non-Kuwaiti.jf The empirical analysis of the 1970-1986 data confirmed the dominance of the Government in the economy and the characteristics of a small and open economy. More importantly, the simulation exercise emphasizes the leading role of oil prices in overall economic activities and various accounts to the extent that a modest rise in oil prices is likely to turn the budget deficit into huge public savings and foreign accounts into mounting surpluses.

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