Measuring the Impact of Oil Revenues on Economic Growth Rates in Libya

Abstract
This study addresses the topic of measuring the impact of oil revenues on economic growth rates in Libya. The oil sector has held exceptional importance in the Libyan economy, as it is a rentier economy that relies heavily on oil revenues (crude oil). Crude oil exports account for approximately 98% of Libya's total exports. For decades, there has been a weak relationship between oil production as an activity and the economy, except for some minor manufacturing industries. The country heavily depends on rent revenues to finance the general budget, and these revenues constitute over 60% of the GDP and are the primary source of foreign currency. This reliance on oil has led to a reduction in the contribution of other sectors to GDP, distorting the economic structure, as agricultural and industrial activities have been steadily declining.

David Ricardo, in his book Principles of Political Economy and Taxation, was the first to introduce the concept of rent in economic terms. According to Ricardo, rent is the extra income derived from fertile land. Later, the concept of rent was extended to include the rent from the extraction of natural resources such as gas and oil. Rent is essentially a non-renewable wealth found in nature, deep beneath the earth’s surface. It does not require economic activities or processes to be produced; it merely needs to be extracted and then utilized economically in various life and industrial activities.

The Libyan economy suffers from significant and severe distortions, which can be considered the effects of the "Dutch disease." The state has failed to direct oil revenues into the development of other sectors. The issue lies in the failure to employ these revenues and invest them in projects that diversify the economy, reduce reliance on a single resource, and achieve its development goals. As a result, the most important productive sectors, notably the industrial and agricultural sectors, have deteriorated, and state-owned projects have either been stalled or are waiting for the government to rehabilitate them.

The imbalance is evident in the Libyan economy, with the focus being on oil production and export, while non-oil sectors are weak and their contributions to the economy are minimal. This growing demand for consumer and investment goods and services to meet the needs of these sectors leads to an increasing reliance on imports to cover the rising demand. This situation worsened after 2011, leading to what is termed economic contraction, where imports exceed exports by significant margins, indicating a dependence on the international market.

Keywords: Economic Growth Rate, Economic Structure Distortion, Rentier Economy, Economic Contraction