Effects of the socioeconomic model known as the “Dutch Disease”

Followed pattern results:

• First, local resources are allocated largely to the production of non-tradable services, and employment opportunities are reduced in sectors producing exchangeable goods and services.
• Second, the prices of local factors of production have risen without a parallel increase in their productivity, and with the narrow wage labor opportunities, women’s work got restricted to a limited number of professions.

The case of Lebanon is distinguished from that of countries that have witnessed similar developments:

• The flow of funds is not linked to the export of natural resources such as oil, but rather to the money transfers of Lebanese expats, who thus turn into an export item.
• Unlike the oil countries, this money accumulated in the form of deposits and debts.

The effects of the consolidation of the “Dutch disease” on the economy:

The effects of this pattern on the economy are permanent and numerous. The internal financial blocs in Lebanon are constantly accumulating and latent losses are generated in assets, and the prices of non-exchangeable goods and services are rising. We are also witnessing an over-investment of capital in the production of non-tradable goods and services and a fading out of investment in other sectors. In addition, heavy reliance is placed on cheap non-resident labor, sources of income become unstable and the share of wages in local income declines. Companies have become heavily indebted, as the average interest burden in most branches of the Lebanese industry exceeds 70% of profits before interest, taxes and depreciation, and most institutions remain very small and are of the family type. The annual net outflow of emigration is estimated at about 40,000. The outcome of emigration cancels all-natural increase in the Lebanese population of working age.