The Comparison of Economic Competitiveness and Development of The U.S. and Saudi Arabia

Introduction

The economic performance of any nation is the sure indicator of growth performance. The measurement of economic development is an aspect which is revolving over all the nations, with strict strategies put in place by the various government to ensure economic growth in all sectors. Any developed country uses different measures to remain at the top. They check on all factors that could cause economic regression and address them in advance before they mutate into dangerous effects. According to Markusen (1995), he affirms that the lifestyle of the people is a good indicator of the general performance of the nation. Nations which are classified as third world or underdeveloped experience challenges in manufacturing and adopting current technology in solving pertinent issues in the economy(Acharyya andKar 2014,p.74).

Egger et al. (2004) states that countries which are rigid to change find it hard to maneuvers in the economic challenges. On the other hand, developed nations have succinct and mature democracy hence attracts stable political stability which supports many investment ventures (Head 2008). The economic competitiveness is dependent on factors which support the economy. With changing forms of production due to improved technological changes, it is clear that stable nations continue to remain dominant in the international market. They can increase the output of high quality which attracts customers from multiple geographic locations. Continued reliance of primary factors of production makes the nation to lag behind regarding growth. Notably, countries that rely on agricultural production receives less as opposed to those who are more industrialized.

The study suggests that some of the oil producing countries have the high rate of economic growth due to the taxes received by the government (Markusen 1995). According to the observation, the lifestyle of the people in these nations is well improved compared to other countries (Hillman and Ursprung 1993, p.347). The controversy arises when it comes to the level of education and knowledge acquisition. Due to exposure to money at early ages, the level of education in such nations has significantly dwindled, irrespective of high money circulation in the economy. The resultant effect is an economy which lacks the right expertise to execute essential functions. They rely primarily on hired labor from other countries.

The scenario is fundamentally different when compared to developed nations. For example, the United State is a superpower which has been able to control and invest in the right knowledge and innovation (Krugman et al. 2015). Though its economy is not controlled by revenue from oil production, it has been able to sustain good health care and living standards for its citizens. The principal objective of this paper is to evaluate the economic competitiveness of Saudi Arabia and the United States. To achieve the target, a thorough analysis of financial performances will be done, in respect to the two countries. Further, macroeconomics variables such Gross Domestic Product (GDP), inflations and other will be considered before arriving at the conclusion.

Literature Review

Saudi Arabia and the United States economies differ significantly in the mode of their operation. According to Markusen (1995), every country has its major activity which generate its revenue. Irrespective of the economic activity adopted, the primary idea is to support the ordinary citizen within the country (Markusen 2004). To start off, Saudi Arabia is an oil-based economy. The figures suggest that the state is dry and unfertile to support any agricultural production due to the presence of oil wells. According to Head (2008), Saudi has 17% of the oil reserves and ranks as the highest exporter of the oil in the world. Therefore, the country has much influence on the OPEC,

McKibbin (1988, p.189) notes that 80% of revenue generated from this country substantially come from oil export. Along, the population in the country technically lack education and skills to do production activities (Markusen 2004). Due to this reason, they have accommodated more than 5 million foreigners in diverse fields. The incomers have greatly helped this nation to move forward. However, the government is employing different strategies as opposed to the culture where the government controlled the oil business (Acharyya andKar 2014, p.94). Sometime before, the private sector was subdued in this nation. The narrative is changing where investors are encouraged to do business in the country to create jobs for the locals.

Withal, United State is dominant and technologically ahead of Saudi Arabia and most of the nations. The most striking element which distinguishes U.S from the Saudi is the flexibility of the businesses (Egger et al. 2004). Firms in the United States can change their operations as they wish based on the set laws. The freedom has given the country a dominant role in the world economy since investors find it easy to do business with little impediments. Moreover, the private sector has a lot of say in the trading (Head 2008). They are given freedom to make decisions on the economic performance. The business people feel part of the country when they are engaged in solving issues affecting the growth of the nation. The onrush of technology has placed U.S on a very high level compared to Saudi Arabia (Hillman and Ursprung 1993, p.347). The system has been translated to military, health sector and other areas which boost the economic performance. The following paragraphs will elucidate economic performances and macroeconomic variables for the two nations

Unemployment Cases

The rate at which the population is increasing in the world is partially contributing to the levels of unemployment in various nations. Other factors could be lack of skills and low levels of productivity in the economy. According to Egger et al. (2004), the core contributor of unemployment in most nations is lack of commitment by the government to reduce corruption levels. In Saudi Arabia, the government is struggling to reduce the levels of unemployment (Krugman et al. 2005, p.56). Most of the labor is hired from the foreign nations due to lack of competent skills to perform the work available. Although the government has made efforts to create jobs, most of them are going to expatriates (Markusen 1995). The levels of unemployment stand at 12.1%, which is not a good figure for such a prosperous nation. Contrary, United State has tried to reduce the levels of unemployment significantly (Egger et al. 2004). The condition in this country is less severe since the unemployment figure stands at 4.4% in the year 2017.

GDP Growth

Gross domestic product is the best measure to evaluate the growth of an economy. It is a sure way to establish the performance of various players who constitute the nation (Markusen 1995). It is calculated by taking all production which happens within the national boundaries by peoples and companies. Every person or business that operates within the confines of the law irrespective of their origin form the better part of GDP. The GDP growth is calculated using a simple formula listed below (Egger et al. 2004).

C+I+G+(X-M), Where;

C- Personal consumptionX- exports

I-investments             M-Imports

G- Government spending

Saudi Arabia economy is largely controlled by one production which is oil. It is expected that the GDP of this nation is low because GDP constitutes all other economic activities performed by individuals and businesses (Markusen 1995). On the other hand, U.S economy is all-inclusive. It allows the private sector to invest and even attracts foreign people to do business with favorable trading policies. Saudi Arabia GDP as at the year 2016 stood at 646.4 billion USD as compared to 18.57 trillion USD (Egger et al. 2004). The magnitude of the difference is so large which indicate the importance of embracing other economic activities.

Inflation

For an economy to run smoothly, an equilibrium between the prices of goods and services vis a vis to the purchasing power of the people should be striked. Inflation is defined as the general increase in prices of products and services leading to falling ofthe currency power (McKibbin 1998, p.189). Statistics show Saudi Arabia’s inflation rate averages at 3.51%. This is a country which mostly relies on the export of oil, hence making the money circulation in the economy to increase. According to Head (2008, p.56), an increase in money circulation improves the purchasing power, hence creating the artificial shortage of goods and services. United State has the inflation rate averaging at 2.2%, which is lower than Saudi(McKibbin 1998,p.189).

Export

The measure of a mature economy is determined by the number of exports and revenue generated at a given time. A country cannot continually rely on imports and aim to achieve the anticipated growth. Egger et al. (2004) notes that stabilization of the economy is determined by the performance of its exports. Scholars have defined exports as good and services which are sold to other nations. Saudi Arabia only exports oil in large quantities to other nations. This single reliance is dangerous especially when the oil reservoirs exhaust (Head 2008). The United States on the other hand is regarded as the industrious nation, which can export both manufactured goods as well as services. Comparing the two, United State receives more revenue due to diversified trade ventures. Concentrating on one area of trade is harmful and risky.

Per Capita GDP

It is defined as the output of the country which is measured by dividing the GDP by the total population. The calculation is important for showing the relative comparison of the actual economic performance of two or more nations (Acharyya andKar 2014, p.86). The per capita GDP for Saudi Arabia is estimated to be 20,028.65USD while that for the United States is 57,466.79 as at the year 2017(Head 2008). The reflective figures indicate that irrespective of high population in the U.S, the country still leads in per Capita GDP. It indicates an example of a developed economy, whose average GDP supersede of a nation whose population is much lower.

Economic and competitiveness indexes

Policies and good trading environment are measured using competitiveness index. It is a scale that evaluates sustainable economic prosperity of any nation (Markusen 1995). According to the report released in the year 2017, United State scored 5.85 out of the possible ten while Saudi Arabia scored 4.83(Head 2008). The figure indicates that U.S is more favored to do business

Empirical Section

The United States is by far comparable to Saudi Arabia regarding economic stability and development.  As it wasalluded earlier, Saudi relies only on one economic activity, which is oil production (Krugman et al. 2015). This is contrary to the U.S which is classified as an industrialized nation, with a myriad of activities that run their economy. There are various models of trade which tries to explain the concept of internalization, as a factor which helps the growth of the economy (McKibbin 1998, p.189). Gravity type of model tries to explain factors such as language, distance and cultural believes to their effects on the cost of trade expansion. Taking the two scenarios of our consideration, it is clear that Saudi economy is barely supported by oil export. There is insignificant number of industries within and outside their boarders. The case is different from the United State, which has many industries and expansive networks of the same in different parts of the world (Markusen 2004). The second model is OLI. This model considers the importance of ownership, location and internalization advantage (Marksusen 1995). Countries that take advantage of new geographic locations can benefit from new customers tremendously. The figure below shows the general trend in GDP growth of the United State(Luckhurst 2017,p.75)

Figure 1: US GDP from 2004 to 2013(Luckhurst 2017, p.75)

The figure indicate a general increase in the GDP from the year 2006 to the year 2017. Growth in GDP is an indication of the continued increase in the production levels (Egger et al. 2004). United State is one of the countries which has embraced technology in production and offering of survives, which contributes to the witnessed rapid increase of GDP every year. Similarly, the figure indicate below compares GDP of Saudi Arabia (Luckhurst 2017,p.75)

Figure 2: Saudi Arabia GDP from 1980to 2011(Luckhurst 2017, p.67)

As opposed to the U.S, Saudi Arabia has some irregular performance in the GDP. Taking the year 2006 as the base year, it is clear that the performance was so low and rapid change is witnessed in the year 2010/2012. This could be due to stabilization of oil markets in the world, with OPEC regulating prices. Unpredictable market waves could have caused the drop in the year 2016. The table below clearly compares all the macroeconomic factors that contribute to economic development.

  Saudi Arabia United State
GDP   Unemployment   Inflation   Per Capita GDP   Export Competitiveness Index 646.4 Billion USD   12.1   3.51%   20,028.65 USD   4.83 18.57 trillion USD   4.4   2.2%   57,466.79   5.85  

Table 1: The table shows different macroeconomic factors influencing economic growth

The table indicates that all factors that contribute to economic development are high in the United States compared to Saudi Arabia. The U.S economy is more stable irrespective of it carrying more population than Saudi.  Per capita income gives a rough estimate of what an individual in the country can earn taking all factors constant.

Conclusion and Recommendation

Economic performance is contributed by many elements in the country. Manufacturing and service industries are the backbone of any nation, and strategies to boost them should be considered for effectual results. The paper highlight the various macroeconomic factors, which enabled to conduct a comparison between the two nations. For example, GDP is a strong measure of performance since it encompasses all production activities in the country. It accounts for both products and services. It is, therefore, a good reflection of how the nation is fairing when compared to others. Additionally, per capita GDP is calculated from the total GDP. The figure sheds light on possible earning of every individual in the country. It is an average of what the country produces over the population. Moreover, exports indicate what the country can dispose to other nations for revenue generation. The study reveals that the United States can score high compared to Saudi Arabia. Finally, inflation rate also gives an indication of the general circulation of money in the economy. The United States scored well in all the factors that were considered in comparison to Saudi.

For Saudi Arabia to improve its economic competitiveness, the government should demystify its investment rather than rely only on oil production. They can invest more in services and manufacturing industries. Furthermore, the private sector should be encouraged through favorable trading policies. It was found that United State economy is largely controlled by the private sector, who have command in its performance. Saudi should embrace the same trend. Finally, adopting education is the core for any country to grow. Saudi Arabia should mainly advocate for the education of its citizens to avoid heavy reliance on technical expatriates from foreign nations.

References

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Hillman, A. L., and Ursprung, H. W. (1993). Multinational Firms, Political Competition, and International Trade Policy. International Economic Review34(2), 347.

Krugman, P. R., Obstfeld, M., andMelitz, M. J. (2015). International economics: Theory and policy.

Luckhurst, J. (2017). Global Economic Governance Since the Global Financial Crisis. The Shifting Global Economic Architecture, 57-80.

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McKibbin, W. J. (1988). The international monetary system: Essays in world economics. Journal of International Economics24(1-2), 189.