Previous Issues

Recent economic literature suggests that the so-called “Dutch Disease” and the Guns vs. Butter dilemma may detract from the contribution oil revenues make to the development of the exporting countries, especially those with heavy military burdens in the Middle East. The purpose of this paper is to provide an empirical of the extent and relative degree to which these two effects have suppressed industrial development in the Arab States.

The main findings indicate that the Dutch Disease effects appeared to build up in the late 1970s/early 1980s. Although their impact was concentrated in the Gulf States, this impact was waning by 1985. Military expenditures have probably had their greatest negative effect through preempting skilled labor from industrial activities. With the development of a much larger number of qualified graduates from the region’s expanded school system, this problem should be alleviated over time.