OPTIMAL OIL EXTRACTION, EXPLORATION AND INVESTMENT IN AN UNDERDEVELOPED OIL-EXPORTING COUNTRY: THE SAUDI CASE (SAUDI ARABIA).

摘要

Interaction between the oil and non-oil sectors in an economy has been largely overlooked in the literature. This thesis endogenizes the rate of oil extraction and considers the resource as a direct contributor to consumption and investment.;Sensitivity analysis within the simulated model confirms theoretical predictions of intersectoral effects. The ratio of capital to consumption is affected by changes in the preference and non-oil production function parameters. Resultant effects on the marginal productivity of capital in turn influence the extraction path. Changes in demand parameters affect the path of extraction directly and of consumption and capital indirectly.;Changes in the demand function specification affect the rate of oil extraction, which declines in each case, but at a differing rate. Our results throughout confirm Hoel's findings for constant demand elasticity: that the lower the backstop technology price, the higher will be the initial oil price.;With regard to investment abroad, our analysis shows that if returns on the investment are constant the extraction path and the consumption path will separate regardless of the non-oil domestic economy. If returns are decreasing, the more stringent the restrictions imposed by the foreign government (the greater the risk) the smaller will be the extraction level.;Our model incorporates the theory of nonrenewable resources into the neoclassical growth model and assumes that the objective is to maximize over time the social welfare of the representative individual, subject to constraints of income and of oil stock. Consumption, domestic investment and extraction rate are determined simultaneously.;When a discovery function is incorporated, the model shows that as new fields are found the rate of extraction will decline more slowly or may even be reversed, depending on specification of the extraction cost function.;This model can serve as a long run planning tool for a country having large oil reserves. However, the reliance should be on relative values and qualitative results rather than on exact magnitudes.