In sum, the real GDP in 1994 was at 60 percent of its 1972 value and at 42 percent in per capita terms, while the country relied on foreign inflows to import goods and services for investment and consumption.

In 2004, Lebanon recovered much of the characteristics of 1972, but with an inflated public sector since public investment and consumption reached 18 percent of GDP against 12 percent in 1972. Much of the increase was in public consumption that reached 15 percent of GDP against 9.0 percent in 1972. The export sector recovered from 1994 but was still half its 1972 level (19.9 percent of GDP in 2004 against 38 percent in 1972). More importantly, the sector composition of GDP shows the impact of a decade of foreign inflow on the structure of the economy between 1994 and 2004. Sectors producing tradable goods in agriculture and industry saw their share drop significantly, while sectors producing non-tradable goods in services and public sector developed strongly. These are all symptoms of deindustrialization with resource diversion to non-tradable sectors that developed due to a strong spending effect. Noticeably, in real terms, the GDP in 2004 was at 93 percent of its 1972 value, and per capita GDP at 56 percent.

# **_2. A Simple General Equilibrium Analysis for Modern Lebanon: Simulation and Results_**

The analysis below simulates the impact of a 10 percent change in foreign inflows on the Lebanese economy for the years 1972, 1994, and 2004. For the base case, foreign reserves are excluded, and only the amount of net foreign savings that closes the current account deficit is maintained. This modification assumes that any increase in foreign savings is directly and fully channeled to the economy with incidence on demand and prices. The simulation includes both an increase and a decrease of foreign inflows by 10 percent. There is no simulation of any shock on the prices of exports, due to the diversification of industry, exports, and agriculture in modern Lebanon. With this diversification in the tradable sectors, a shock in any single sector would not have an effect comparable to the significant effect of a change in the prices of silk in 1912. The exercise aims to assess the vulnerability of Lebanon to external shocks and their impact on the economy. Table 6 summarizes the results of the analysis.

Table 6. Simulation of external shocks on the economy of modern Lebanon (change, in percent)

|Change in remittances & foreign savings|197|2|199|4|200|4|
|---|---|---|---|---|---|---|
|Scenarios|10.0|-10.0|10.0|-10.0|10.0|-10.0|
|Total Income|1.5|-1.5|10.4|-9.9|4.9|-4.8|
|Private Consumption|0.7|-0.7|3.5|-3.6|1.4|-1.4|
|Private Consumptionper capita|-1.7|-3.1|1.5|-5.5|0.1|-2.7|
|Investment|1.4|-1.4|4.4|-5.0|4.5|-4.8|
|Exports|-0.5|0.5|-6.2|6.9|-2.6|2.7|
|Imports|1.3|-1.3|7.9|-7.8|4.1|-4.0|
|Demand of domesticgoods|0.4|-0.4|0.6|-0.7|0.7|-0.7|
|Price of domesticgood|1.6|-1.5|12.4|-11.6|5.7|-5.5|
|Real exchange rate|1.6|-1.5|12.4|-11.6|5.7|-5.5|
|Real GDP at marketprice|0.1|-0.1|0.0|-0.4|0.1|-0.2|

Source: author simulations.

The simulation for 1972 shows an economy that is relatively sheltered against the changes in foreign inflows. In terms of uses, domestic consumption and investment were largely covered by the supply of domestic goods and services, while exports provided a substantial coverage of imports. Foreign 10