A study of the association between absorptive capacity and development strategy in Saudi Arabia
Omair, Saleh Abdulaziz
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This study analyzes the association between absorptive capacity and Saudi Arabian development strategy. It is the aim of this dissertation to identify, in broad terms, some of the major aspects of a strategy by which to pursue economic development in an efficient and effective manner which takes absorptive capacity constraints into account. To accomplish that aim, this study first discusses the unusual aspects of the development problems currently confronting Saudi Arabia. These aspects arise mainly from the large flows of financial capital in a situation of a modest stage of development. Saudi Arabia has financial capital available to an extent that allows it some latitude in the selection among alternative future circumstances and configurations of its societyâ€” including the nature of its economic system. Three types of possible future states of the Saudi Arabian society have been identified. The first is called a rentire society; the second a dualistic society, and the third a modern society. On the assumption that Saudi Arabia seeks to become a modern society, the study identifies a set of allocative decisions which an appropriate development strategy must take into account. These decisions include (1) present. versus future sales of natural resources abroad; (2) Â» domestic expenditures versus foreign investment; (3) among domestic expenditures, consumption versus investment; and (4) among domestic investment, allocations among various types of investments. The study also discusses the importance and interdependence of three types of capital (physical, organizational, and human) and three types of infrastructure (physical, technological, and institutional). The study shows that Saudi Arabia faced, and still faces, a complex set of cultural, social and institutional relationships that impedes the optimal utilization of existing resources and the development of new resources. The discovery of oil removed one obstacleâ€”the lack of capital, but the social and economic structures did not change fast enough to permit the economy to absorb the capital made available by oil revenues. The performance record was disappointing. Throughout the period under discussion there was little change in the structure of production. The oil sector remained the most important part of the economy. Gross domestic product has risen steadily during the period under discussion, reflecting the rise in oil output and price. Investment targets have not been realized. The study suggests that some policy measures can be adequately used to relieve some of the specific absorptive capacity constraints, thereby increasing the aggregate absorptive capacity.