Log-linearisation in Short

Log-linearisation in Short with an example

There exist many different types of models of equations for which there exists no closed form solution. In these cases, we use a method known as log-linearisation. One example of these kinds of models are non-linear models like Dynamic Stochastic General Equilibrium (DSGE) models. DSGE models are non-linear in both parameter and in variables. Because of this, solving and estimating these models is challenging.

Hence, we have to use approximations to the non-linear models. We have to make concessions in this, as some features of the models are lost, but the models become more manageable.

In the simplest terms, we first take the natural logs of the non-linear equations and then we linearise the logged difference equations about the steady state. Finally, we simplify the equations until we have linear equations where the variables are percentage deviations from the steady state. We use the steady state as that is the point where the economy ends up in the absence of future shocks.

Usually in the literature, the main part of estimation consisted of linearised models, but after the global financial crisis, more and more non-linear models are being used. Many discrete time dynamic economic problems require the use of log-linearisation.

There are several ways to do log-linearisation. Some examples of which, have been provided in the bibliography below.

One of the main methods is the application of Taylor Series expansion. Taylor’s theorem tells us that the first-order approximation of any arbitrary function is as below.

We can use this to log-linearise equations around the steady state. Since we would be log-linearising around the steady state, x* would be the steady state.

For example, let us consider a Cobb-Douglas production function and then take a log of the function.

The next step would be to apply Taylor Series Expansion and take the first order approximation.

Since we know that

Those parts of the function will cancel out. We are left with –

For notational ease, we define these terms as percentage deviation of x about x* where x* signifies the steady state.
Thus, we get

At last, we have log-linearised the Cobb-Douglas production function around the steady state.

Sims, Eric (2011). Graduate Macro Theory II: Notes on Log-Linearization – 2011. Retrieved from https://www3.nd.edu/~esims1/log_linearization_sp12.pdf

Zietz, Joachim (2006). Log-Linearizing Around the Steady State: A Guide with Examples. SSRN Electronic Journal. 10.2139/ssrn.951753.

McCandless, George (2008). The ABCs of RBCs: An Introduction to Dynamic Macroeconomic Models, Harvard University Press

Uhlig, Harald (1999). A Toolkit for Analyzing Nonlinear Dynamic Stochastic Models Easily, Computational Methods for the Study of Dynamic
Economies, Oxford University Press

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COVID-19 and Digital Inequality: What role Telecom sector can play in Pakistan and beyond?

“While the internet is an important resource in efforts to stay informed and proceed with daily lives during the COVID-19 pandemic, these online approaches to reducing risk are not available to everyone in the same way. There are several challenges, Pakistan is confronting at the domestic front, however a less obvious, yet nonetheless an important, issue that the digital divide is complicating efforts to respond to the challenge of pandemic government and society face collectively. Indeed, a private sector, and especially Telecom, should come forward, during this pandemic, and finds ways to bridge the digital divide as quickly as possible through reliable and cost-effective (subsidize, affordable) internet and broadband services, which became a matter of life and death in Pakistan”

Like many other developing countries, the majority of Pakistani households do not have physical access to the internet, primarily due to low income and poverty. As per recent research of Digital Rights Foundation (2020)[i], internet access in Pakistan stands at around 35 percent, with 78 million broadband and 76 million mobile internet (3/4G) connections. According to the Inclusive Internet Index 2019[ii], Pakistan fell into the last quartile of index countries, ranking 76 out of a 100; particularly low on indicators pertaining to affordability[iii]. the broadband internet is not affordable for large segments of the population and many can only afford limited mobile internet packages. As more services move from offline to digital, it is evident that a new inequality trend-the digital gap is emerging, which can exacerbate the pandemic and human health situation, since a significant disadvantage(s) arises when it comes to accessing the real-time information people need to respond to COVID-19. This is a problem not only for people without broadband access, but also for society as a whole as we struggle to flatten the COVID-19 curve.

In Pakistan, besides the structural inequalities such as class, gender, location, ability, and ethnicity, the internet access is undercut by its affordability, and severe economic pressure during the pandemic, as more and more people are losing jobs, calling for an immediate response from donors, government and particularly service providers, the Telecom sector.

While, several other organizations, are trying to support marginalized communities, teachers, and students, I am curious whether the telecom sector has any plan to give relief to the people in the time of pandemic? The average cost of call and internet is neither subsidized nor any free data packages are announced via Corporate Social Responsibility. Here are some benefits of providing free access to the internet during the time of pandemic:

1. Reduce informational asymmetries between service providers and people in need (it includes NGOs, public sector organizations, and academic institutions)

2. Speed up or facilitating registration and data acquisition process for social safety nets and other relief operations

3. Help to connect with families for overseas relatives, students and provides social cushioning and mental relief in the time of panic and when social and mainstream media is creating sensitization.

4. Reduce internet poverty which may result in reducing informational blockages and/digital inequality, consequently improve families social and economic conditions. Because, freelancers and others have access to such internet facilities and they can work from home as well as reduce pressures on employers.

5. It also helps telecom by increasing their demand, and may enhance their profits as a proportion of society may opt for companies that have better and low-cost internet and call services, making them have more customers. Thus, we urge the Telco to come up to support and take a lead to reduce digital inequality and help communities to fight against the Corona virus pandemic.

However, the Government besides other measures and policy response, must also enable Telco to perform its duties unrestricted, ensure that the Pakistan Telecommunications Authority (PTA) assists and facilitate the Telco to increase the bandwidth capacity in Pakistan as a whole, but significantly, in the marginalize areas of Baluchistan, Federally administrated tribal areas and Gilgit-Baltistan. It also is imperative for government and Telco to ensure citizen’s privacy and Cyberthreats, and reduce vulnerable towards unreliable internet connections at a time when the internet is tied to essential services. Last but not least, the government and service providers should also ensure rapid response towards establishing and revisiting the existing infrastructure, since it may lead to slow-downs or malfunction during this increasing demand, and flow of data and information.

[1] Program Director, M&S Research Hub, Germany

[i] Joint Statement by Digital Rights Foundation and BoloBhi: The Digital Gap During the COVID-19 Pandemic is Exasperating, March 31, 2020, Inequalitieshttps://digitalrightsfoundation.pk/joint-statement-by-digital-rights-foundation-and-bolobhi-the-digital-gap-during-the-covid-19-pandemic-is-exasperating-inequalities/

[ii] Inclusive Internet Index (2019). Retrieved at https://theinclusiveinternet.eiu.com/

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Pakistan Hidden Treasure: Policy Agenda for Integrating People with Disabilities in Education and Development

In Pakistan, estimates of the number of persons living with disabilities (PwD) vary between 3.3m and 27m, depending on whether they are based on government statistics or estimated by other agencies or sources[1]. Although the country made early attempts to include persons with disabilities in the 1980s by introducing educational and employment policies, setting up special schools for persons with disabilities, and employing a quota-based system and levies, still these efforts proved to be ineffective, and People with disabilities (PwD) still have difficulty exercising their civil and political rights, attending quality schools and finding gainful employment. This ultimately means that they are being excluded as productive members of society, leading to economic losses of as much as US$11.9bn-15.4bn for Pakistan[2]. Since, most of the current policy and programmed-approaches to disability have largely been focused on rehabilitation, welfare, medical support or charity, the people with disabilities continue to face myriad challenges. Though, the country ratified the UN Convention on the Rights of Persons with Disability (CRPD) in 2011, to include right-based approaches towards PwD, the progress around building an “inclusive education” instead of segregated “Special education” for PwD has been slow and ineffective.

When it comes to the educational facilities and policies for children with disabilities in Pakistan, they are at a two-fold disadvantage[3]. The recent estimates by UNESCO suggest that as many as 1.4 million children with disabilities are left without access to either inclusive or special schools[4]. While, the government strategy has been primarily to offer education for children and adults with disabilities in separate “Special schools”, there are several drawbacks, including that these facilities are inadequate and accessible to only a small proportion of children with disabilities. According to the British Council, “there are 330 special education schools in Islamabad, Punjab, Sindh and Khyber Pakhtunkhwa provinces. Most of these schools are in urban areas, which makes education for persons with disabilities in rural areas a challenge and 50% of children with disabilities have access to such schools. They are costly from a public budget standpoint and keep children excluded from the rest of society. Even if there is an “Access”, these special schools vary in the “quality of education” and often have inadequate support in terms of “pedagogy and lack of proper instructors/teachers”, making “quality a question mark”[5].

This exclusion has an economic cost too, as estimates from the World Bank, and Economist Intelligence Unit suggests that by 2018 the costs of exclusion of disabled persons from employment towards Pakistan’s could reach US$20bn a year. The current base is US$12bn, and these costs will continue to rise each year—that’s approximately US$5.5m per day, every day[6]. Other socio-economic reasons also come into play. Families may simply be too poor to send their children to either public or private school, or there are limited transport options where schools are far away. Beyond needing the means for schooling, the social stigma also leads many parents to withhold their children from available schooling and there is also a huge drop-out rate for children with disabilities. In the case of girls, families are too protective, as well as worried about safety and sexual harassment or violence (rape), when it comes to handicapped girls. There are also gender-biases, especially where families belong to ultra-conservative or marginalize communities from Khyber Pukhtunkhwa and Baluchistan, where even normal girls are withheld from education.

Therefore, considering a high drop-out rate, scarcity of teachers, insufficient resources, poor infrastructure, social and cultural practices, discriminatory stigmas, attitudes of the parents and difficulties in transitioning to higher levels of education, we need following key steps towards “inclusive education” strategies/program for persons with disabilities at Government and community level:

  1. Develop a comprehensive set of laws to protect the rights and dignity of persons, especially Children and Girls with disabilities in all aspects of living. This includes laws that protect them regardless of their age, gender or caste to discourage discrimination, provide inclusive education, improve educational infrastructure, build teacher’s capacities and transportation, use ICT4 Special Education and upgrade the curricula and quota system.
  2. Strengthen existing ministerial and government departments on special education, and develop a rigorous monitoring system to not only implement PwD’s laws and policies but use available resources wisely and evaluate their performance through key performance indicators. The existing mechanism has to be revamped both at Federal, provincial and local government levels and more representation should be given to the people with disabilities, so they can help in devising better policies and laws. It is also imperative that donors and other stakeholder resources and funds for education for PwD are maintained through external/internal evaluation and proper and regular monitoring is followed.
  3. In order to tackle access, and limited governmental resources to build new schools, the Pakistani government can use available resources through upgrading existing “stand-alone special schools” by integrating them into the “regular schooling system”in remotes areas. Since available Special education promotes segregation, but if the inclusive educational system is promoted, persons with disabilities can be taught in the same classroom as mainstream students, making educational services more accessible and affordable. However, the government must ensure that traditional schools are equipped with proper facilities, resources and ensure effective training of instructors to teach PwD.
  4. The government should invest in school capacity development, and utilizing youth, which can offer summer schools for PwD. Similarly, changes in school infrastructure and investment in better teacher training is equally significant to reduce disparities towards PwD.
  5. Similarly, Innovative community-based mechanisms can also reduce the burden on the government. There are successful examples in Pakistan, such as the using digital technologies/ICT to educate people with disabilities[7] distance and e-learning programs[8], as well as the Lady Health Worker Programme and several similar community-based mechanisms, which can help in educating PwD, building awareness, changing attitudes and driving change as well as reaching marginalize communities and to serve/educate PwD in a cost-effective way.
  6. At the Community level, government and community-based organizations, can work with religious leaders, Maddaris(religious schools), and non-formal educational facilities can be utilize to cater needs of education for PwD. Mosques can be used for “workshop along with worship” as they are frequently available and can be used for “people Welfare. These available resources also need proper mechanisms and facilities through citizen-government initiatives.
  7. The existing Disabled people’s organizations (DPOs)[9] need to work together with government, private organizations, schools such as Allied/ Bacon House School System and local communities to ensure a united front that communicates change from a rights-based approach. These DPOs largely focused on a charity or medical aid, which are both important services, especially where the government falls short, however, there needs to be better awareness of communities, reducing parental biases, stigmas and fears the need for broader change.
  8. Last but not least, to improve the economic condition of the families having people with disabilities, government, Non-profit organizations, corporations (as part of their Corporate Social Responsibility CSR) and DPOs should focus on enhancing such families economic resources, provide them social safety nets and other employments, so they can invest in their children and PwD more effectively.

In conclusion, inclusive, adaptive and innovative mechanisms supported at government and community level, will further efforts to achieve the educational outcomes for the people with disabilities and improve their status in contributing towards Pakistan’s economy as a productive member.

[1] The Economist; Intelligence Unit, Moving from the Margins; August 2014 and Information from the National Forum Supporting Women with Disabilities Emerging Concept of Women with Disabilities

[2] Moving from the margins: Mainstreaming persons with disabilities in Pakistan – produced in 2014  by the Economist Intelligence Unit for the British Council

[3] Ibd

[4] Daily times (2014). 1.4m disabled Pakistani children have no access to schools says Dr. Kozue Kay Nagata, Director UNESCO Islamabad. Available on http://unesco.org.pk/education/documents/2014/efa_week/national_forum/pc_DailyTimes.pdf

[5] Ibd

[6] Ibd

[7] See for instance “ICT and AT4DPwDs” at http://ict4dpwd.ning.com and www.telecentre.org/group/telecentrefordisabilities.providing some successful apps and technologies mainstreaming education for PwD.

[8] Helping the disabled: AIOU opens e-learning centre for visually impaired. Published in Express Tribune, Oct. 26th, 2015. Retrieved at https://tribune.com.pk/story/979070/helping-the-disabled-aiou-opens-e-learning-centre-for-visually-impaired/?amp=1

[9] Disability organizations in Pakistan. Available at https://disabilityict4d.wordpress.com/pakistan/

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Building Traditional Food Knowledge: An approach to Food Security through North-South dialogue.

  • A forthcoming book chapter as part of compiled book (2020) on ´´Food (In) Security in the Arctic: Contribution of Traditional and Local Food to promote Food Security´´. The book chapter cites recommendations to inform policy on food (in) Security .It discusses a special focus on the inclusion of indigenous communities in integrated resource management processes; where the use of local knowledge in addressing food security is explored. The inclusion of resource dependent communities in processes of spatial planning, integrated natural resource management is discussed. Bio cultural diversity is briefly discussed within the context of perceptions and governance practices in relation to regimes of dynamic, changing societal influences including social-spatial, political and socio-economic processes, linked to globalization that influence dynamics in food security in the global north and south. Key messages arise within the empirical survey that raise important issues on food security and governance linked to the bio cultural diversity web. It raises issues related to Indigenous populations which have through the years made a case of their engagement with the bio cultural web through land governance approaches in the provision of secure regimes of food. 
  • For more information on book project, see link: https://www.arcticcentre.org/EN/projects/foodsecurity
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Children Marriage: Alarming & Unattended Phenomenon in the Middle East

A forthcoming paper has used MICS UNICEF Survey Data for a sample of three Middle Eastern countries: Egypt, Sudan, and Palestine and employed Multilevel logistic regression to empirically investigate the impact of child marriage on a large set of women and children health-related indicators. The results showed that child marriage is generally associated with giving birth to children with higher under-five mortality rates. Also, women who marry before reaching the age of 18 are less likely to receive any form of antenatal care and more likely to give birth to children who later die.

Governments and public communities should pay close attention to improving the widespread, availability and affordability of education for girls and women nationwide regardless of the women’s residence area and levels of income. Subsidizing and income transfer programs should make sure that girls continue their education and do not leave schools due to income constraints. Availability and reachability of schools especially for girls living in slums or refugee camps that are located outside the peripheral areas of public services should be improved and families need to be constantly advised and guided about the importance of education to their children.

Within the MENA region that has the lowest global share of female literacy, Palestinian women are classified as the best-educated (The Royal Academy of Science International Trust [RASIT], 2017). Our analysis suggests that the better educational attainment of Palestinian women explains the low prevalence of child marriage and having relatively lower health deprivations relative to their counterparts in the other countries. Better educated women are not only capable of better caring about their health and the health of their children but also they are better wives, citizens and a catalyst for the development of their countries. As narrated by Hafez Ibrahim the Nile poet in his poem about knowledge and morals (Ibrahim, 1937): “A mother is a school, whenever you equipped her well, you prepared a nation with a fine race”.

Reference: Hassan, S.M and Khan, M. (2020). Health Repercussions of Child Marriage on Middle-Eastern Mothers and Their Children. MSR working papers, 001-2020.

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The Development Impact of Foreign Aid: Story Re-told

There has been an intense debate in the literature over the reasons behind the loose developmental effects of foreign aid. Away from the straightforward reason that majority of aid flows follow political rather than development objectives (Kanbur et al., 1999; Dreher, et al. 2009). Further, several reasons have been introduced in the literature see for example (Radelet, 2008; Bräutigam and Knack, 2004, and others). However, these reasons can be condensed into two core causes, a) Lack of clear development agenda by the recipient countries which result in misallocation of aid and establishment of various simultaneous individual projects that even if successfully completed will have limited impact on the development of the target sectors; and b) The mismatch between donors, recipients, and target beneficiaries’ priorities and needs that create an aid system that is incapable and inadequate of achieving the entailed goals.

In response to common pitfalls of the aid system, a new setting for aid disbursements based on sector-wide approaches instead of individual projects was introduced by Kamel, et al. (1998) and was later modified by (Kanbur, et al. 1999) and evolved into a system entitled the ‘common pool approach’. Our following policy suggestions will build on these, however, we bring in some modifications for the system implementation and evaluation.

The basic rationale behind the common pool approach is that a pool of donors—instead of one— allocates unconditional funds to a recipient country’s nationally representative reform plan and its implementation strategy, instead of individual projects. Such a system would increase the recipient country’s sense of ownership and commitment while enhancing the achievability of developmental and reform goals relative to individual uncoordinated projects approach. The major drawback is the minimisation of aid received because many donors – besides political lobbies and private sector firms – might not agree to fund national plans instead of individual selective projects. In addition, donors’ ability to pursue their own interests, conditions, and opinions will dwindle. Anyhow, detailed discussion for the common pool system and sector-wide approach is found in formerly cited articles. Subsequently, we introduce a new system which combines both approaches, sector-wide and common pool, whilst including our personal reflections that will hopefully alleviate the expected drawbacks of these approaches.

 Figure A1 provides a basic graphical representation of the new blended system. The graph is elaborated in the following points,

  1. The recipient country starts to move in the direction of prohibiting all forms of aid transferred to individual uncoordinated projects, but rather allows only aid channeled towards sectoral reform plans.
  • The governmental authority with the cooperation of civil society, the private sector, policymakers, and citizens, formulate a reform plan for the target sector.
  • A series of roundtable meetings are held in the recipient country capital that involves potential donors (single and multilateral), international experts, and other national parties in order to receive feedback on the preliminary proposal (sponsoring the meetings in the recipient country would ease national parties’ involvement and cooperation, which reflects in a higher sense of belonging and ownership).
  • A final neat version of the proposal is then reformulated along with its implementation strategy that involves foreign and domestic shares. For instance, technical and human resources in the implementation strategy are distributed as 70% domestic and 30% by the donor’s side. One major drawback of the common pool approach is the lack of donor involvement in the implementation, which in essence is a good thing to increase the sense of ownership by the recipient. However, this is reflected in lower lobbying by the private sector and political parties in the donor country to step forward for similar approaches. We, therefore, propose a cooperative share of interests, however still managed and authorised by the domestic country and in the framework of the domestic strategy.
  • The donor authority in this phase lies in accepting or rejecting the plan and the amount of fund provided, based on credibility and achievability of the plan.
  • Donors together with the recipient responsible authority would agree on a set of quantifiable and measurable assessment measures that are monitored and reported by the authority itself, though donors are also allowed to intervene in the monitoring and evaluation of these measures. This is an incentive for the authority and other parties involved in the strategy to abide by the rules and the plan. Also, in the case of system corruption, which is the likely case in the majority of developing and poor countries, it is well known that foreign assessment might intervene anytime to inspect and evaluate. In addition, donors will be more relieved and secure when they have a hand in the evaluation process, unlike the common pool approach which prohibits any form of foreign intervention in the process unless requested by the recipient.
  • Finally, a renewable annual funding plan is offered based on the realisation of these measures; failure to abide by the authority results in a violation of the contract. By doing this we eliminate any chances of aid misallocation, corruptive activities, and other illegal traits because the recipient knows for sure that failure will hinder any future possibilities of funding for other reform plans. Moreover, the ex-ante participation of civil society and citizens makes the government accountable to the public, which also affects their political popularity.

Eventually, let me conclude with this phrase from Kanbur, et al. (1999) “The possibility of the decline in aid will require a substantial amount of confidence on the part of recipients who adopt the approach. It requires a government with the willpower to say to donors: ‘Here is my program in this sector: if you wish to help me implement it, you are most welcome. If you wish to do something different, I regret that you are not welcome in this sector in this country.” The foremost outcome of the proposed blended system, common pool, and sector-wide approaches, is filtration of aid received by the recipient, by adopting these approaches, will be able to locate donors that endeavor no hidden, political, or ideological agendas but only support the recipient country’s development efforts.


Hassan, Sherif (2020). Revisiting the Development Impact of Sectorally Disaggregated Foreign Aid. Poverty and Public Policy (in press).

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The evil in the heart of the good: Unfolding the role of remittances in the escalating trade deficit figures of the MENA region.


The MENA region is ranked first in terms of remittance receipts (3.83% of GDP) worldwide, it has also the highest non-oil trade deficit among other developing regions (World Bank, 2018). This study uses panel data from 11 Labor-abundant MENA countries (main destination of remittance receipts) to examine the trade balance effect of remittances. We postulate that the main driver of the trade deficit in the MENA region is the weak industrial sector, which fails to provide domestic substitutes for imports of manufactured products (El Wassal 2012). Based on our hypothesis, we imply that in countries with weaker domestic absorptive capacity, the excessive demand of remittance-recipient families will not be compensated by domestic production, but rather imports of the consumption good, thus worsening the trade balance deficit.

The empirical work from the MENA region on the trade balance effects of remittances is limited. Bouhga-Hagbe (2004) supported the evidence of this effect in Morocco, wherein remittances covered the trade deficit and contributed to the observed surpluses of the external current account. Kandil and Mirzaie (2009) showed that remittances promote both exports and imports in Jordan while nourishing only exports in Tunisia. In the case of Egypt, El Sakka, and McNabb (1999) reported that imports financed through remittances have a high-income elasticity, thereby implying
that they are either consumer durables or purchased by high-income groups. In a study, involving interviews of 304 remittance-receiving families across 16 Egyptian governorates during 2015–2016, Farzanegan et al. (2017) examined further the causes and effects of
remittances. Using a panel of 17 remittances receiving countries in the MENA and Central Asia regions over a period of 1990–2009, Abdih et al. (2012) concluded that a significant portion of remittances is
used to purchase foreign goods.

Our empirical results confirm the import triggering effects of remittances, however these effects are mitigated as the investment capacity of a country gets stronger and become able to neutralize foreign purchases with domestic products. Many policymakers are pushing to increase remittances as a reliable source of income by reducing transfer costs. The real challenge is promoting the productive use of these remittances in financing domestic production capabilities and non-oil exports. The channel of promoting domestic capital formation through encouraging private savings and productive use of remittances could improve the balance of trade. This can be realized by promoting financial services, which targets repatriates and their families, like saving incentives, interest rate premium on migrant’s deposits, and the issuance of remittances back bonds. Although
remittances may carry some development-related outcomes, such as income smoothing, reducing poverty, and promoting education, the applied literature is still equivocal about the magnitude of these effects and the governing conditions to realising these effects. Our paper is an
example of a study that has highlighted a rather countercyclical effect of the
inflow of remittances on the recipient countries’ trade balance. This piece of
evidence among others suggests that promoting remittances does not always come in favour for the recipient economies and is conditioned to the prevailing economic and institutional environments.


Mohammad Reza Farzanegan & Sherif Maher Hassan (2019) How does the flow of remittances affect the trade balance of the Middle East and North Africa?, Journal of Economic Policy Reform, DOI: 10.1080/17487870.2019.1609357

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Oil war: GCC stability Vs. EU stability


After the dramatic turmoils that took place in France and then have spread across other European countries. These turmoils were mainly triggered by the hikes in Oil prices in the last few months, These surges have caused rigorous supply shock to prices, causing thousands maybe million of Mid-class people in EU to struggle. Lives casts from Paris and Belgium brought back memories from the Arab spring in early 2011, the similar domino effect of the tragedic sequences where people get into the streets to demand something, then other people who suffer from a different thing – etc. labor reforms- use the chance and start raising their voices, a different group, farmers start asking for higher prices for their products, an escalations of social frustration that build on as days pass by.

However these problems start to loosen up as oil prices start to sharply decline again, and as this was the main trigger for these social escalations, it was the main lessor for these as well. besides other measures that were adopted by these countries’ governments, but none of these could have worked without first the stabilization and reduction of oil prices. OPEC countries that are dominated by GCC oil hubs such as Saudi Arabia, UAE, and Kuwait have been pushed to increase oil production and this will automatically bring down oil prices. A strategy that indeed comes in favor of these conflicted first class developed countries, yet it does not necessarily come in the favor of the people living in oil exporting countries, especially in such times where domestic inflation rates in Saudi Arabia and UAE are escalating, budget deficits in the new Saudi Budget reaches historical records, however, the political pressure simply cannot be overseen. GCC countries have to react in favor for the big ones instead of their people, as oil is their major budget components, few dollars reduction in its prices will cause millions of budget revenue to be lost.

One lesson here is that the economy is no longer free, the political influence of the big ones govern economic laws of supply and demand as well as the strategic products prices. However, for developing countries, governments need to fight back against this political dominance and strongly hold to the power of rejection to decide what’s good for their own people.

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