SOAS Research Online

Abstract

The subject of this study is the influence of an oil boom on the economic growth and structure of a open small economy with reference to Libya following the discovery of oil. The relevant theoretical literature is based upon the Dutch Disease theory. After a survey of the literature upon this theory, the study investigates the economic growth and structural changes which occurred in the Libyan economy during the three decades to 1990. The analysis is conducted within a time-frame composed of three distinct periods: these are the pre-boom period, the boom period and the post-boom period. Historical trends depicted within these periods show that the Libyan economy had undergone several fundamental structural changes and that the biggest of these took place during the oil price shock period between 1973-1982. The investigation examines Libya's experience of sectoral shifts and the performance of the agriculture and manufacturing sectors under booming conditions. It is shown that in both these sectors booming conditions brought about rapidly increased demand, relative price changes and change of technical conditions of production. These in tum led to rapid expansion in the manufacturing sectors share within the total tradables output combined with a decline in the share for agriculture. The study demonstrates that the fall in the share of agriculture was the result of fast industrialisation rather than the Dutch Disease effect. In general the study reveals that speedy growth of oil export revenues was associated with high investment and economic activity in commodity producing sectors (manufacturing and agriculture) and that the period of slump in oil revenues had coincided with slower growth and lower investment in these sectors. The study's main finding is that the problems encountered in the Libyan economy were not those predicted by the Dutch Disease but that they were more directly connected with the efficiency of investment and government strategy toward the industrialisation process.