Transcript Economy of the Middle East

ECONOMY OF THE
MIDDLE EAST
SS7E5, SS7E6, SS7E7
SS7E5 The student will analyze
different economic systems.
• SS7E5. C. Compare and contrast the
economic systems in Israel, Saudi
Arabia, Turkey, and Iran
Israel
• Has almost no natural resources or
farmland
• Developed good relations with much of
Western Europe and the United States
• Economy based on advanced technology
Saudi Arabia
• Rich oil reserves
• Profit from oil allows them to buy most goods they are unable
to produce themselves
• King and his advisors make most decisions about how and
where to spend the oil profits
• Invested much wealth in technology and services which allows
them to produce goods not usually found in a desert climate
Iran
 Great oil wealth
 Command economy has not been efficient
in recent times
 Shift to a more mixed economy
 Despite the oil wealth, the Iranian people
do not share in the money
Turkey
• Least economic freedom of these four countries
• In earlier times, the gov’t has controlled airlines,
railroads, telephone, and television
• Recently the gov’t has loosened its hold on these
industries
• Have allowed some private ownership
• More laws have been passed to protect business owners
Summary Questions:
The economies of Israel, Saudi Arabia, Turkey, and Iran
could best be described as….market, command, mixed,
or traditional?
2. How have the Israelis made up for their lack of natural
resources?
3. Which industry does the gov’t of Saudi Arabia heavily
control?
4. How has the king of Saudi Arabia used the profits from
oil to help other areas of his kingdom?
1.
SS7E6. The student will explain how
voluntary trade benefits buyers and
sellers in the Middle East
• SS7E6.a. Explain how specialization
encourages trade b/w countries
Specialization
 Not every country can produce the goods and services it
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needs
So they “specialize” in producing a good or service that
they can produce most efficiently
They can then trade that product for goods and services
they need
Way to build a profitable economy and earn money to
buy what it needs
Saudi Arabia specializes in the production of oil and gas.
Israel specializes in agricultural technology even though
they have a limited supply of farm land.
Summary Questions:
1. What is “economic specialization”?
2. Saudi Arabia specializes in the production
of?
3. Israel specializes in?
SS7E6. The student will explain how
voluntary trade benefits buyers and
sellers in the Middle East
• B. Compare and contrast different
types of trade barriers such as tariffs,
quotas, and embargos
Trade Barriers
 Anything that slows down or prevents one
country from exchanging goods with another
 Some protect local industries from lower priced
goods made in other countries (keeps
competition away)
 Some created due to political problems between
countries
Tariff
 Tax placed on goods when they are imported
into one country from another
 Purpose is to make the imported good more
expensive than the similar item created locally
 “protective tariff”-protects local
manufacturers from competition
Quota
 Different way of limiting the amount of
foreign goods than can come into a
country
 Sets a specific amount of particular
goods that can be imported in a
certain time frame
Embargo
 When one country announces that it will no longer
trade with another country in order to isolate the
country and cause problems with that country’s
economy
 Usually result of a political dispute
 1973-OPEC decided to stop all sales of oil and gas
to countries supporting Israel in the 1973 ArabIsraeli war
Summary Questions:
1. What is a tariff?
2. What is a quota?
3. What is an embargo?
SS7E6. The student will explain how
voluntary trade benefits buyers and
sellers in the Middle East
c. Explain the primary function of the
Organization of Petroleum Exporting
Countries (OPEC)
OPEC
 Created in 1960 by countries with large oil supplies
 Countries wanted to work together to regulate the
supply and price of oil exported to other countries
 First five countries: Kuwait, Iraq, Saudi Arabia, Iran
and Venezuela
 Continue to decide how much oil they will produce
and that determines the price on the world market
 Basic principles of supply and demand
Summary Questions:
1. Why was OPEC created?
2. What happens to the price of oil when
OPEC countries decide to limit the
production?
3. Where are most of the OPEC countries
located?
SS7E7. The student will describe factors
that influence economic growth and
examine their presence or absence in
Israel, Saudi Arabia, and Iran
• A. Explain the relationship b/w
investment in human capital and gross
domestic product
Human Capital
• The knowledge and skills that make it possible for
workers to earn a living producing goods and
services.
• Companies that invest in human capital generally
earn higher profits.
• Countries that invest in human capital generally
have higher production levels of goods and
services.
• This can lead to a higher gross domestic
product than countries that do not invest in
human capital
Gross Domestic Product (GDP)
• Determined by taking the total value of all goods
and services produced by a country in a single
year.
• Wealthy countries generally have a much higher
GDP than developing or underdeveloped
countries.
• Countries in SW Asia have widely different GDP
levels
• Countries that make it possible for workers to
have education and training generally have
higher GDPs.
Israel
• Much access to education
• Economy depends on technology industries to
make up for country’s lack of natural resources
• Many citizens work in industries related to
medical technology, agricultural tech., mining and
electronics
• Highly developed service industries
• GDP very high b/c of its investment in human
capital
Saudi Arabia
• Main industry is as an exporter of oil and petroleum
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products.
Technology involved in oil industry requires education and
much training.
Also have modern communications and transportation
systems
Enormous building projects
These economic factors require investment in human
capital
Saudi Arabia has a high GDP
Some citizens still practice traditional economic activities
like farming and herding
Iran
• World’s fifth largest producer of oil
• Oil industry requires well-trained and
educated workers
• Have well respected schools and
universities
• However, in recent years, Iranian
government has not done a good job of
regulating the parts of the economy that are
under gov’t control.
Summary Questions
• Why have the Israelis made a big investment in human
capital?
• Why would the Saudi oil industry need a large investment
in human capital?
• One of Iran’s biggest problems with their state-run oil
industry is::
• If a country does not invest in its human capital, how can
it affect the country’s GDP?
B. Explain the relationship between
investment in capital and GDP
Capital goods
• Factories, machines, and technology that people use to
make other goods
• Can increase production, which can increase profit which
can increase GDP
• Israel
• Invested heavily in capital goods
• Also invested heavily in technology used in defense industry
• Saudi Arabia
• Invested heavily in capital goods
• Especially in technology needed in oil, transportation, and
communication
• Iran
• Has made great investments in capital goods related to oil
production, technology and communication
• Also spends a great amount on technology for its defense
industry
Summary Questions
• What are capital goods?
• Israel has invested heavily in capital goods
in all of the following areas EXCEPT…..
SS7E7. The student will describe factors
that influence economic growth and
examine their presence or absence in
Israel, Saudi Arabia, and Iran
• C. Explain the role of oil in these
countries’ economies.
Oil
• One of most important and valuable resources in
the Middle East
• Most of the worlds’ industrial nations depend on a
steady supply of oil and gas
• U.S. imports nearly half of all the oil it uses,
almost 18 million barrels every day
• Over half of the world’s known supplies of oil
come from countries in the Middle East
Oil
• Israel
• Has practically no oil at all
• Economy depends more on technology than natural resources
• Saudi Arabia
• Has very few natural resources other than oil
• Very influential in world economy and OPEC
• The gov’t has modernized roads, schools, airports, and
communication systems
• Iran
• Most valuable resource is oil
• 85% of country’s money comes from the sale of oil and
petrochemicals
• 1/3 of population works in agricultural areas
• Political problems have led to economic difficulties
• Member of OPEC, therefore benefits by keeping the price of oil
high in the world market
Summary Questions
• Why are oil and gas such valuable natural resources?
• How much of the oil used by the U.S. has to be imported
every day?
• How has the Saudi gov’t used its national wealth to
change the country?
• How do Iran and Saudi Arabia benefit from belonging to
OPEC?
• How has Israel’s lack of oil affected that country’s
economy?
SS7E7. The student will describe factors
that influence economic growth and
examine their presence or absence in
Israel, Saudi Arabia, and Iran
• D. Describe the role of
entrepreneurship
Entrepreneurs
• Creative, original thinkers who are willing to take
risks to create new businesses and products.
• Willing to risk their own money (usually) to
produce new goods and services in the hope that
they will earn a profit.
• Only about 50% of all new businesses are still
operating after three years
• Important asset to a strong economy