A

Abstract

absorptive capacity. The ability of the oil-producing countries to spend internally or absorb their oil revenues. The concept emerged following the FIRST OIL SHOCK when oil revenues increased sharply and was linked to the RECYCLING problem. The implication was that oil producers with a low absorptive capacity would be unable to spend their revenues. This would reduce world levels of spending, thereby leading to a recession. In the event most countries designated as having a low absorptive capacity exhibited a remarkable ability to spend money, although how useful this spending was for the country’s development remains highly questionable. The producers usually identified as low absorbers are Saudi Arabia, Kuwait, the United Arab Emirates, Libya and Qatar.