Authors' note: The authors wish to thank Professors Hashem Pesaran of Cambridge University, Hans Blommestein of the Free University of the Netherlands and Dutch Treasury, Stanislaw Wellisz of Columbia University, Randall Olsen of The Ohio State University, and Haider Ali Khan of the University of Denver for their critical remarks and constructive suggestions. We also wish to thank the referees for their helpful comments. Finally, Manoucher Parvin acknowledges faculty leave granted by the University of Akron for the study of technology transfer.Google Scholar

¹ See Bruno, M. and Sachs, J., ‘Energy and Resource Allocation: A Dynamic Model of the Dutch Disease,’ National Bureau of Economic Research, Working Paper, No. 852 (February 1982);Google ScholarCorden, W. M. and Neary, J. P., ‘Booming Sector and De-Industrialization in a Small Open Economy,’ Economic Journal, 92, 368 (12 1982), 825–42;CrossRefGoogle Scholar and Van Wijinbergen, S., ‘Inflation, Unemployment and the Dutch Disease in Oil Exporting Countries: A Short Run Disequilibrium Analysis,’ World Bank, Mimeo (New York, 1982).Google Scholar

² For detailed discussions see Contractor, J. and Sagafi-nejad, T., ‘International Technology Transfer: Major Issues and Policy Responses,’ Journal of International Business Studies, 12, 2 (Fall 1981), 113–31;CrossRefGoogle ScholarParvin, M., ‘Technological Adaptation, Optimal Level of Backwardness and the Rate of per Capita Income Growth: An Econometric Approach,’ The American Economist, 19, 1 (Spring 1975), 23–31;CrossRefGoogle Scholar and Parvin, M., ‘Economic Development with a Modicum of Fossil Fuel and Foreign Exchange Resources,’ Journal of Energy and Development, 8, 1 (Autumn 1982), 127–45.Google Scholar

³ For various forms of transformation functions, see Diewert, W. E., ‘Functional Forms for Profit and Transformation Functions,’ Journal of Economic Theory, 6, 3 (1973), 284–316.CrossRefGoogle Scholar

⁴ Note that only a small percentage of oil production is used as industrial input in OPEC. In 1978 only less than one-eighth of the oil production was used for consumption and production purposes (see Hallwood, P. and Sinclair, S., Oil, Debt, and Development: OPEC in the Third World [London: George Allen Unwin, 1981]).Google Scholar Also see Public Information Department of OPEC, OPEC Future Energy Markets (London: Macmillan Press Ltd., 1980). It should be noted that for simplicity our model assumes uniform factor intensity across the two sectors.Google Scholar

⁵ For trade-related optimizations, see, e.g., Kemp, M. C., The Pure Theory of International Trade (Englewood Cliffs, N.J., 1964).Google Scholar

⁶ See Silberberg, E., The Structure of Economics: A MathematicalAnalysis (New York: McGraw- Hill, 1978).Google Scholar

⁷ Fixing T is for simplicity and it is based on the assumption that the technology transfer does not take place in the traded sector. This assumption is realistic for OPEC during the period under examination. The conclusions are not altered if this assumption is dropped as long as the price ratio increases due to the wealth effect.Google Scholar

⁸ Due to the absence of data, Gabon, Qatar and United Arab Emirat are excluded from the study. The remaining countries are Algeria, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela.Google Scholar

⁹ See Theil, H., Principles of Econometrics (New York: Wiley, 1971) for a detailed discussion of identification in simultaneous equation models.Google Scholar

¹⁰ We first employed dummy variables to capture the country-specific effects. However, the estimated coefficients on these variables appeared insignificant and therefore they were omitted.Google Scholar

¹¹ For issues related to technology transfer in Arab oil-producing countries, see Zahlan, A. B., ed., Technology Transfer and Change in the Arab World (Oxford: Pergamon Press, 1978).Google Scholar