Limitations of Kuwait’s Economy: An Absorptive Capacity Perspective

This paper aims to examine the absorptive capacity of Kuwait’s economy over the period (1970-2010). The paper will expand on the analytical framework to estimate the absorptive capacity of the Kuwaiti economy developed previously by the main author. The absorptive capacity of the Kuwaiti economy has been increasing steadily over the years. Domestic absorption depicted a slow growth pattern during the period 1970-2000. However, it has accelerated significantly over the last decade rising by almost three fold from $29.1 bil in 2001 to $82.2 bil in 2010. However, the constant positive resource balance and the excess of foreign exchange earnings indicate the limitations of the economy absorptive capacity. The paper highlights the main constraints that limit the ability of the Kuwaiti economy to absorb resources and provide few policy recommendations that should help in increasing the absorptive capacity in long run.