Oil, Debt and Development

OPEC in the Third World

Paul Hallwood, Stuart Sinclair

• Publisher: Routledge
• Year: 2016
• eBook ISBN:
  9781317244226
• Topic: Volkswirtschaftslehre
• Subtopic: Business allgemein

This book, originally published in 1981, discusses the various welfare effects – including ai, debt, trade and labour flows - of the rise in oil prices and revenues which took place in the 1970s. These complex effects and the negotiating stances of the developing countries are all examined an dinvestigated, drawing upon a wide range of sources and material for the more quantitative parts. Throughout, however, the treatment is non-mathematical and is written in clear English accessible not only to bankers and polititians, but also students of economics, international relationjs and area studies.

1

Economic Divergences between Developing Countries

This chapter discusses the growth and development experience of the less developed countries from circa 1960, the beginning of the first United Nations Development Decade, through to about 1973. Its purpose is to show how, through various channels and at various times, certain ldcs or groups of ldcs became differentiated from the mass so that by the end of this period a number of them had made considerable progress towards raising the average income of their inhabitants. Since this would later have an important influence on these countries’ response to the oil price rises of the 1970s, it is important to set out this background before proceeding.

The following sections deal with growth patterns in the First Development Decade of the United Nations and continues up to 1973. Initially the discussion is couched in terms of aggregative growth; that is, in terms of gross national product and industrial output. But it is widely recognised by now that these terms provide only one perspective on ldcs’ development, and that while they are helpful in pointing up overall patterns they do not reveal everything about the nature of the growth experience for those who live through it. For this reason the final section of this chapter discusses different measures of economic and social development.

The development experience, 1960–73

As the first United Nations Development Decade opened, the prospects for most ldcs were coloured by the position of primary commodity prices. For in 1960, 86% of all ldcs’ foreign exchange earnings were obtained through the exports of raw materials in unprocessed forms.¹ The preceding decade had seen growing dissatisfaction with primary commodity specialisation, and the influence of economists such as Lewis, Prebisch and Singer led to greater interest in import substitution, or the setting up of an indigenous manufacturing base to replace dependence on imports of finished goods in exchange for primary commodity exports. Of special significance here was the decline in the terms of trade (that is, the relationship between a country’s export price index and import price index) that ldcs had suffered during the 1950s.² From an index of 100 in 1950, ldcs’ terms of trade vis-à-vis dcs fell to 86 by 1961.

Table 1.1 Growth rates in GNP, 1960–7

Growth rates per annum	Number of ldcs	Share of total ldc population %
6% or over	18	15
4% – 6%	25	31
under 4%	37	48

Source: UN (1967).

The objective of the First Development Decade was, quite naturally, to ‘accelerate progress towards self-sustaining growth of the economy of the individual nations and their social advancement so as to attain in each under-developed country a substantial increase in the rate of growth’ (UN, 1962). The growth rate of GNP specified as the minimum objective was 5%, to be attained by the end of the decade. This was sufficient to double per capita living standards within 25–30 years.

It became apparent as early as 1967, however, that the 5% goal was not being attained throughout the developing world and furthermore that the gap in per capita incomes between ‘rich’ and ‘poor’ countries’ inhabitants was widening both relatively and absolutely. Population growth was the major contributor to the failure to achieve growth objectives, for although ‘total real product’ as calculated by the UN rose by 4.5% annually over 1960–5 in ldcs – a figure close to the 5.1% achieved in developed countries – in per capita terms, the improvement in ldcs was about 2%. This was barely better than half the developed countries’ per capita rate of 3.6% (UN, 1967).

These growth rates were not, of course, shared by all ldcs, still less by all regions or sectors within each ldc. In a sample of eighty ldcs whose data was collected by the UN over the years 1960–7, the mode growth rate was less than 4% per annum but a number of countries achieved growth in excess of 6% and even up to 20% (see Table 1.1).

The spread of growth rates for the longer period 1951–76 is shown in Table 1.2. This indicates how the groups of ldcs that have now come to be termed ‘lower’, ‘middle’, ‘upper middle’ and ‘higher’ exhibited throughout that period annual average growth rates that were consistently different. For all ldcs the decade of the 1960s was, by a small margin, the period of fastest GNP growth. For certain ldcs it was the growth of manufacturing output (and, later, exports of manufactures) that generated the major part of the observed GNP growth. Their experience in this respect is discussed here and then by way of contrast the trends in raw materials output are assessed.

Table 1.2 Annual growth rate of per capita GNP by country group, 1951–76

^a Grouped by 1975 GNP per capita. Groups are: up to $265; $266–$520; $521–$1,075 and $1,075 and over, respectively.

Source: IBRD, World Bank Atlas, various issues.

Ldcs and world manufacturing

Over the period 1960–75 the value of world manufacturing value added more than doubled. In 1960 the world’s manufacturing value added totalled $468 billion (expressed in 1970 prices) and by 1976 it had grown to $1,056 billion. Yet ldcs’ output grew faster than this and nearly trebled in value, rising from $32.4 billion worth in 1960 to $91.3 billion at the end of the period. Their share in the world total did not begin rising significantly until midway through the 1960s, however, and in 1966 was actually 0.1% lower than its 1960 level of 6.9%. But by 1976 it had reached 8.6% (UNIDO, 1979a). What helped give ldcs this boost in their share was the recession that most dcs suffered from in 1974–5, when GNP actually fell in the OECD region. During these two years ldcs’ output continued to increase, rising by nearly $7 billion, to raise their share of world output from 7.9% to 8.6% in two years.

This increase in ldcs’ manufacturing value added turns out to have been shared reasonably equitably between regions. Analysis of the figures when arranged in four geographical categories (Africa, Latin America, East Asia and West Asia) shows that over the period 1960–75 the growth trends were surprisingly close, at 7.3%, 7.2%, 7.5% and 9.2% respectively (UNIDO, 1979a). The African countries showed no net rise in their share of world manufacturing (it remained at 0.8%) during the post-1973 period; while by contrast the Latin American group managed to increase its share of world manufacturing output at 4.8% in 1975 from 4.5% in 1973 despite only a 1.1% rise in output in 1975. The East Asians’ share rose slightly from 2.2% to 2.5% over 1973–5 and that of the West Asians remained unchanged at 0.5% This was despite annual increases of 10.8%, 8.2% and 8.0% in the years 1973 to 1975 respectively.

This discussion of the regional experience can be supplemented by groupings based on income levels expressed in 1975 prices. This shows very clearly the extent to which the increases just discussed were in fact concentrated in relatively few countries. Table 1.3 summarises the data. This table suggests that it is the middle income group, with income per capita lying between $521 and $1,075 (in 1975 prices), that accounted for most of the ldcs’ rising share of world manufacturing. Between them this group increased their manufacturing value added (expressed in 1970 prices) from $10.8 billion in 1960 to $36 billion in 1975 – a rise of 230%. This exceeds the percentage rise of any other income group, especially those during the years 1966–75. For before 1966, when ldcs as a whole were not successful in increasing their share of world manufacturing value added, the middle income group’s annual increase in this term, at 6.9%, fell below that of the high income ldcs, who managed 8.3%, and was in turn no better than the performances of the lower and upper middle income groups. After 1966, however, a clear opening up of the field became apparent, with the middle income ldcs exhibiting average annual rates of increase far in excess of the others. Over the 1966–75 period, this group’s average annual increase in manufacturing value added was 9.6%, and in six of those years it was in double figures. In 1973 it reached 14.1%. The other groups, in contrast, did manage some bursts of rapid growth – notably the 13.7% rise in output recorded by the lower middle income group in 1973 and the 12.9% rise in 1968 by the high income group – but failed to sustain them. Overall their mean annual increase of manufacturing value added ranged from 4.5% for the low income countries to 7.2% for the high income countries.

Table 1.3 Growth of manufacturing value added in ldcs, arranged by income levels, 1960–75

Group	GNP per capita ($) 1975	Constant growth rates per annum %	Standard error
Low income	up to 265	5.2	0.03
Lower middle income	265–520	7.1	0.03
Intermediate middle income	521–1,075	8.6	0.05
Upper middle income	1,076–2,000	7.3	0.03
High income	greater than 2,000	8.3	0.04

Notes

Low income: Egypt, Ethiopia, Zaire, Tanzania, Kenya, Uganda, Mozambique, Madagascar, Upper Volta, Mali, Malawi, Niger, Guinea, Rwanda, Chad, Burundi, Somalia, Benin, Sierra Leone, Central African Empire, Mauritania, Lesotho, Gambia, Comoros, Cape Verde, India, Bangladesh, Pakistan, Vietnam, Burma, Afghanistan, Sri Lanka, Nepal, Yemen Arab Republic, Yemen (People’s DR), Haiti, Indonesia.

Lower middle income: Nigeria, Morocco, Sudan, Ghana, Cameroon, Angola, Senegal, Zambia, Togo, Liberia, Botswana, Swaziland, Equatorial Guinea, Sao Tome, China, Philippines, Thailand, Jordan, El Salvador, Honduras, Grenada, Bolivia, Papua New Guinea.

Intermediate middle income: Algeria, Ivory Coast, Rhodesia-Zimbabwe, Tunisia, Congo, Mauritius, Republic of Korea, Republic of China, North Korea, Malaysia, Syria, Mongolia, Cuba, Guatemala, Dominican Republic, Nicaragua, Costa Rica, Peru, Colombia, Ecuador, Chile, Paraguay, Guyana.

Upper middle income: Iran, Iraq, Hong Kong, Panama, Trinidad and Tobago, Barbados, Brazil, Argentina, Uruguay, Surinam, Fiji.

High income: Libya, Gabon, Israel, Saudi Arabia, Singapore, Oman, Puerto Rico, Bahamas, Venezuela.

Source: UNIDO (1979a).

Focusing now upon countries within these groups, it transpires that only ten ldcs between ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Copyright Page
• Table of Contents
• List of Tables
• List of Figures
• List of Abbreviations
• Preface
• Introduction: Oil, Debt and the Developing World
• 1 Economic Divergences between Developing Countries
• 2 The Changing World Economic Climate
• 3 The Organisation of Petroleum Exporting Countries
• 4 Energy and the NOPECs’ Terms of Trade
• 5 OPEC and Debt in the Developing World
• 6 OPEC Aid
• 7 The Growth of Trade between OPEC and the Developing Countries
• 8 Labour, Migration and Remittances
• 9 Interrupted Growth Patterns?
• 10 Oil, Debt and Development: An Assessment
• Bibliography
• Index