End of Semester Paper - The Downsides of the Rapid Growth...

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The Downsides of the Rapid Growth of Oil-Producing Nations in the Middle East Name: Adam Gehring Section: 10am – BQD TA: Meysam Zare Article: “A Region Awash With Oil Money Has One or Two Clouds on the Horizon” Date: 4/24/2008 Journal: The Economist
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Introduction: The nations of the Middle East, also known as the Gulf, host some of the wealthiest businessmen in the world. However, they also share some of the highest poverty rates as well. Obviously, oil is probably the number one reason these business owners have become so rich. Many of the small Gulf nations who have rich oil fields contribute over 70% of the total wealth of the Gulf. In fact, last year the Gulf added $215 billion to its stock of foreign assets. Seven star hotels, gigantic skyscrapers, and ravish palaces are just some of the benefits that are constructed due to the income from oil production. However, the poverty and inflation rates of countries in the Middle East are growing very drastically now a days as well, forcing many citizens to not be able to support even themselves. The inflation rate is the rate of the increase in the overall price level. The cost of commodity items is increasing faster than the salaries of employees in these countries. A commodity is anything for which there is a supply , but which is demanded without any qualitative differentiation across a foreign market. The inflation rate has more than doubled. In Oman, the inflation rate right now is 11.1%, an 18-year record! All of this can be traced back to the domestic spending habits of countries in the Middle East. They are spending way too much on themselves and spending it at a very rapid pace that their economies are not balancing themselves out right away. There are three economic forces that are driving these instabilities within the Gulf economies. The first is a rise in the world price of commodities. The second is the fall in the US dollar, and the third is a rise in non-traded goods. These economic forces are nothing but bad news for the Gulf nations. They are helping to cause the price of imports to increase and the tax on food to get larger. The region’s prices are unstable, regardless
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of the steadiness of the dollar. Although inflation tends to be a huge problem for these economies, the Gulf nations can solve this problem by diverting demand to goods from abroad and by increasing the supply of those goods and services that have to be produced at home. Employees have begun to demand better wages to keep up with the increasing inflation rates. In Bahrain, citizens there have recently protested for a minimum wage law. Minimum wage is the lowest hourly, daily or monthly wage that employers may legally pay to employees or workers. Instead of passing a minimum wage law, the government of Bahrain is trying to reform its labor market by making foreign labor more expensive. In other words, it is going to charge
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This note was uploaded on 09/24/2008 for the course ECON 103 taught by Professor Petry during the Spring '08 term at University of Illinois at Urbana–Champaign.

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End of Semester Paper - The Downsides of the Rapid Growth...

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