THE OPTIMAL RATE OF OIL PRODUCTION AND ECONOMIC DEVELOPMENT: THE CASE OF KUWAIT

Kuwait is a country with a small open economy which is endowed with an exhaustible resource, oil. The income from this resource is the only main source of income. Hence, Kuwait needs to implement planning policies to derive an oil extraction policy which is related to its national welfare and its economic development.;A dynamic programming method is applied to solve for the optimal levels of the target and policy variables.;The next step in this study is to determine the optimal levels of oil production that would finance the optimal levels of the policy variables using a basic government expenditure-revenue inequality. To determine these levels of oil revenue and, hence, these levels of oil production, different oil price scenarios are applied.;This study obtains a satisfactory result and concludes that the optimal control technique is a feasible tool to be used for economic planning for the Kuwaiti economy.;This dissertation utilizes the optimal control technique to establish a national economic planning model through which Kuwait's oil extraction policy is determined with relation to the structure of its economy as well as the welfare of the nation. This has been advanced through two steps: first, by building a macroeconomic model, which is used as a constraint on the planning model, which is used as a constraint on the planning model, to describe the economic structure of Kuwaiti economy; and second, by constructing a welfare objective function to measure the preference of the policy makers along the planning period.