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This paper develops a quarterly macro-econometric model for the Kuwaiti economy estimated over the period 1979Q2-2013Q1, allowing us to investigate the long-run role of oil income in the development of Kuwait as well as the direct e¤ects of oil revenue, foreign output, and equity price shocks on real output. More speci…cally, we examine to what extent Kuwaiti real output in the long run is shaped by oil revenue through its impact on capital accumulation, and technological transfers through foreign output. Using the same modelling strategy we also explore the role of oil income in terms of long-run private and public sector output growth (separately). The estimates suggest that real domestic output in the long run is in ‡uenced by oil revenues and foreign output (a proxy for technological progress), and technological growth in Kuwait is on a par with the rest of the world. Furthermore, while we show that both oil revenues and foreign output drive growth in the public sector, it seems that technological progress is the main (and only) driver for private sector real growth. Finally, our results show that oil revenue and global equity market shocks have a large and signi…cant long-run impact on Kuwait's real output and public sector GDP. In comparison, the e¤ects of the foreign output shock is muted.

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This study examined the distributional effects of energy subsidy reduction in Kuwait. A computable general equilibrium (CGE) model was calibrated on a Kuwaiti social accounting matrix (SAM). A simulation experiment was conducted by applying a 25% energy subsidy reduction. The SAM consisted of 10 household groups, categorized into nationals and expatriates, and subsequently classified into five income levels. The employed labor force was classified into two groups (nationals and expatriates), each disaggregated by four skill levels. Industries were disaggregated into 65 branches. The CGE model was specified in such a way that it would be possible to quantify welfare effects on each household group and then trace the changes to distributional effects, factor income, and employment by industrial origins. When accompanied by compensation, the energy subsidy led to an aggregate efficiency (increase in GDP) and welfare gains. The welfare gains among Kuwaiti nationals were progressive; the lower-income groups gained more than higher-income groups.

The Kuwaiti economy is characterized by two major structural imbalances—heavy dependence on oil production and dominance of the public ownership. Kuwait has struggled over the years to implement a two-pronged development strategy —diversifying the country’s economic base away from the oil sector and promoting private sector development. This paper explores the economic impact of some policy reform options currently being considered. It employs a unique set of input–output tables, derived from supply–use tables, that distinguishes transactions made by private and public enterprises as well as providing a matrix of imports by industry. The public–private sector interdependence analysis revealed interesting results regarding sectoral differences in strengths of forward and backward linkages. For instance, the findings indicated that the strength of the publicly owned oil sectors lie in their forward linkages, supplying other sectors with their outputs, but their backward linkages is weak. On the other hand, the chemicals industry is identified as one of a few sectors with balanced and relatively strong forward and backward linkages in both public and private sector. The policy analyses conducted in this paper are highly relevant to the ongoing policy debate in Kuwait over the design of the economic reform programs. The public–private linkage analysis has revealed insights into policy synergies through which one instrument can affect more than one policy target.