THE ECONOMIC IMPACT OF DEVELOPMENT: A CASE STUDY OF THE LITANI RIVER AND OTHER PROJECTS IN LEBANON By EZZEDIN M. SHAMSEDIN A DISSERTATION PRESENTED TO THE GRADUATE COUNQL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY 4 UNIVERSITY OF FLORIDA January, 1961 OKOICATIOM To wy Brother, Ahmad of iffaoB I Ml very foad. 11 ACKMOWLEDGMBNTS TIm writer wishes to sxprsss his dssjpsst ^prsciatlon to Fro- fsssor C. Arnold Matthovs, Chsirmsn; and to th« othor msabors of tho Suporvlsory CoonlttM, Frofsssors lush E. Ghosts, Wylls Kilpstrlck, Miirrsy Shislds snd Allsn Slsvsrs, who wsrs most gsnsrous with thslr tins snd suggsstlons for asking this s bsttsr study. Hs slso wlshss to scknowlodgs his Indsbtsdnsss to Profsssor Alsxsttdsr GslssnhslsMr who has b««n tlrslsss In giving his asslstsncs snd to Mrs. Hsney MeConavghy throu(^ whoss erltlclsa ths styls of ths anuscrlpt wss laqprovsd. Special thanks are due to Dean Sanuel M. Derrick of the School of Business Adalnlstratlon of the University of South Carolina and to Professor Alfred Salth, Head of the Departnent of Econoales, who have been nost cooperative in arranging the writer's acadealc schedule so as to give hla omxImu tlae for this study. Plnally, he wishes to thank his wife, without whose pstlenee, forbearance* and eneourageaent this study would not have been possible. Ill n TABLE OP COMTEMTS DEDICATION 11 ACKNOHLEDGtCMTS Ill LIST OF TABLES vll LIST or MAPS AK) ILLUSTSAi IMS xl PAH I. THE ECONOMIC FBAMEUO&K Chi^tar I. THE NATUKE Of TBI STUDY 2 Introduction Stat — t of the Problen Puxpeso, Procaduro, and Sourcaa of Data II. SUEVBY OF THE LEBANESE ECONOMY 8 Tha Land and Population National Product and Capital InvastBont Agriculture Industry Transportation III* fOIEICN ECONOMIC RELATIONS 60 Conmodlty Trada Balance of Paynents International Reserves The Exchange Systen and Exchange Rates Coanerclal Policy PART II. NATURE AND REQUIREMENTS OF THE DEVELOPMENT PROJECTS «^ XV. CHARACTERISTICS AND SIGNIFICANCE OF THE DEVELOPMENT PROJECTS 8S Features of the Lltanl Project Econoalc Significance of Phase A of the Lltanl Project Features and Significance of Extraordinary and Continuing Projects Chapter Pag* V. PHYSICAL REQUIKSMENTS AMD AVAILABILITY OF MATERIALS. 110 Local Construction Praetleaa Physical Requlrcnents Availability of Physical RaqulraaMuits fl. nNARCIAL REQUIREMCNTS OP TRB OEVKLOPIOMT PRO(»AM ... 129 Tha Litani Project i . i' ' Other Extraordinary Projects Continuing Public Works Foreign Exchange Requirements of Extras .... ordinary and Continuing Projects SwBBMiry of Total Financial Requirenents PART III. FmANCIAL 8Y8TS)6 AND PLANS FOR FINANCING <-'.\r. i i . m. MONEY, PRICES, AND GOVEKN»ffiNT FINANCES 13S The Monetary and Banking Systees Money Supply and Level of Prices Goverraaent Finances VIII. DOteSTIC FINANCING OF THE DEVELOPMENT PROGRAM 176 The Reserve Fund ' : ;>,'|^vif; Sale of State Property : i; Taxation BoBMStie Debt XX^ FOREIGN FINANCING OF TUB DEVELOPMENT PROGRAM 190 International Bank for Reconstruction and Developnent Private Foreign Loans Loans and Grants fron Foreign GovemoMints Govemnent's Receipts of Foreign Exchange Liquidation of Excess Gold Holdings PART IV. POTENTIAL EFFECTS OF THE DEVELOPMENT PROGRAM X. ECONOMIC IMPACT OF THE DEVELOPMENT PROGRAM ...... 204 . Expenditure Effects of the Oevelopa«nt Prograai , XI. POLICY QUESTIONS . 4 4 « « ^.a^* * 236 Monetary Policy Tax Policy vu. Expenditure Policy M'i ' Foreign Economic Policy Summary IT Ch«pt«r PART V. SIDMARY AND CONCLUSIONS XII. SUIMART AND CONCLUSIONS Purpose and Justifie«tion of th« Study Findings Policy Roconnendatloat BIBLIOGRAPHY 1 » LIST OF TABLES T«bl« 1. PepulAClon» Vital and Bnlgratlon Statistics of Ubanon, 1932, 1947-1957 10 2. Number of Registerad Palestinian Rcfugeas In Labanon by Dlatrlcta, 1955 13 3. Distribution of Eeonoaically Activa Mala Population la Labanon by Occupation, 1950 15 4. Nat DoMstlc National Product of Labanon In AaMuat, by Typa of Industry, in Par Capita Incoota, and in Rata of Income Growth, 1950-1956 19 5. Eatimates of Per Capita Net National Product of 54 Countrlea Bj^raaaed in U.S. Dollara: Annual Average 1952-1954 21 6. Percentage Contributions of Various Sectors to Net Oemestic National Product In Lebanon, 1950-1956 22 7. Net Domestic National Product and Capital Investment in Ubanon, 1950-1956 25 8. Direction of Inveatment in Lebanon, by Coayoaant Classes, 1950-1954 27 9. Land and Land Uae in Ubanon, 1954 29 10. Agricultural Production in Lebanon, 1950-1957 ...... 31 11. Agricultural Production, Food Imports and Export a 1952-1956 35 12. Major Quiractarlsties of laduatry In Lebanon, 1955 ... 40 13. Industrial Production in Labanon, 1952, 1954, and 1956 . 41 14. Value of Inventories Held and Inventoriea as Psrcentage of Cash Receipts by Major Industry Group, 1955 49 15. Adjusted Value of Merehendlse li^rts and Ea^orts of Lebanon, 1951-1957 %l T«bl« 16. M«rchandl«« Ii^ortt to Ubanon, 1952-1956 63 17, P«rc«ntag« Distribution of Htrchandise Iisporta, 1952-1956 6* It, Iterchandis* Export* of Ubanoa, 1952-1956 ........ 66 tf, Forccntage Distributicm of H«rch«ndiM Exports, 1952-1956 ..... 67 j^O^ Percantagtt Distributions of In^rts and Ei^rts of Ubanon by Country, 1951-1956 . 68 21, Sumnary of Balance of Paynants Position of Lebanon, 1951-1954 W 22, Vumbar of Tourists Visiting Lebanon and Estimated Earnings froa Tourism, 1951-1956 * • 73 23, Official International Reserves of Lebanon, 1950-1957 . 75 24, Exchange Selling Rates in Beirut Market of Lebanon, 1950-1957 78 25, Litani Irrigation Plans . • 86 26* Weight and Value of Olive Oil Exports from L^anon, 1952-1956 100 27. Principal Classes of Materials or Work Required for Local Construction in Phase A of the Litani River Project 115 28. Domestic and Foreign Financial Requirements by Project Feature, for Phase A of the Litani River Project 121 29* Level of Total and Selected Conqponents of the Index of . Wholesale Prices in Selected Countries, 1957 122 30. Domestic and Foreign Financial Requirements by Con- struction Year, for Phase A of the Litani River Project . 124 31. Government Coonitments for Extraordinary Oevelt^ment Projects by Construction Tear 125 32. Foreign Exchange Requirements of Extraordinary and Continuing Projects, by Construction Year 130 33. Allocation of Development Costs Between Lebanese and Foreign Sources, by Type of Project, and by Construction Year 132 iii T«bl« 94, Not* Circulation aad Cooqpositlon of Curreacy Cover In Ubanon, 1948-1957 1^ 39. Demand Daposlts of tha I^banaaa Treaaury and Other Official Agenelea with the BSL, 1952-1956 . 144 36. Direct and Indirect Xndebtedneaa of Lebaneae Govemaent to the BSL, End of Year, 1952-1956 145 37. Banka 0|i»eratlng in Lebanon as of December 31, 1956 , . 151 38. Value of Checka Cleared, Beirut Clearing Office, 1950-1957 153 39. Bank Loana and Discounts to the Private Sector and Private Deawnd Deposits, 1952-1957 . • , 154 40. Money Supply and Factors Affecting Money Supply In Ubanon, End of Year, 1952-1957 156 41. Index of Wholesale Prices In Lebanon, 1951-1957 .... 159 42. Cost of Living Index In Beirut, 1951-1957 159 43. Ordinary Budget Total Revenues aad Total Ei^endltures In Lebanon, 1952-1957 165 44* aevenuea of the Ordinary Budget of Lebanon by Source, 1952-1957 167 45. Percentage Distribution of Revenues of the Ordinary , Budget of Lebanon by Source, 1952-1957 168 46* Current and Capital Ejqiendlturea of the Ordinary Budget of Lebanon, by Economic Category, 1954-1957 . 169 47* Percentage Dlatrlbutlon of Expendlturea for the Ordinary Budget of Lebanon by Type and Category, 1954-1957 . • . 171 48. Reserve Fund of Lebanese Govemnent, 1942-1956 .... 174 49. Statue of GovenuMnt Reaerve Fuada, Decesd>er 31, 1956 . 175 50* Mnual Domestic Currency RequlrMcnts and Feasible Soureea of Fuada by Construction Year 189 51 i Hot a Circulation, Required Cover, and Bxeess Cover, 1950-1957 196 92. Annual Foreign Exchange Requirements end Vesslble Sources by Construction Year 202 labU 53. Bxpcndituras Effects of th« DcvelopoMmt Prograa* on National Product of Lebanon By Construction Yaar 208 54. Distribution of IncoM by Econoaically Aetlva Mala Population by Ineoaa Sl«a Class, 1950 214 55. Expandlturas on tha Dovalopnant Program, by Typas of Local Cost and by Construction Yaar 216 56. Estlnatas of Supplies and Thair Disposition in Lebanon, 1953 221 57. Indexes of Wholesale Prices, Cost of LiYing, and Exchange Selling Kates in Ubanon, 1950-1957 234 58. Official and Adjusted Value of Laports and CustOM gaceipts, 1952-1956 257 X LIST OF MAPS AMD ILLUSTRAXIONS 1, Lebanon in tlM M1441* K«st 7 2. Total P1«D of DcvelopMtnt of th« Lltanl Projoct .... 84 S, Units to bo GoBOtructod Undor PhMO A of tho Litoai Projoct 89 4. laltiol Canal Excavation Skewing Rough Canal Saetlona . 112 S« Matiwd of Coapaeting Earth Fotmdatlon for Conerota Lining lU Band*Placad Stona Eipri^ to Bring Peundatim to Corraet Crada 112 7. Lining Canal with Coacrata 112 i« A Gonerata-Llnad Canal Carrying Watar to tha Plaids . 113 §• Cottcrata-Llnad Sacondary Canal Carrying Watar to Para Land 113 Mi PART I. THE ECOHOMIC FRAMEWORK CHAPTER I THE NATURE OF THE STUDY Introduction In this era of cmiflietlng IdcologlM and world-wide unreet, peoples of many of the eo-called underdeveloped countries have becooie acutely aware of their social and economic ills. Through political, economic and technological changes wrought hy two major wars, and through closer direct contacts and increased communications, they have learned much of the more progressive Uest. This new awareness has brought new nsbitlons. It has also brought frustration. Politically, there has been a marked growth in nationalism. Economically, the drive for development has been intensive. The problem is no longer whether to develop, but whether the capacities for development of these countries will be sufficient to satisfy ambitions and maintain political tranquility. By Western standards, the economy of Lebanon is considered under* developed.