The last column simulates the increase needed in remittances to compensate for the impact of a 10 percent decline in the price of exports on private per capita consumption. The assumption here is that in the face of a drop in income and consumption, part of the population would emigrate while the diaspora would increase transfers to the motherland. Interestingly, to compensate for the impact of a 10 percent drop in the prices of exports on private per capita consumption, Mount Lebanon needed to receive remittances higher by 16 percent. The combined effect of the decline in exports and rise in remittances is higher income, higher imports, and higher demand for domestic goods while real GDP remains unchanged. The prices of domestic goods remain on the decline due to a combination of a high deflationary effect stemming from the decline in exports prices and of a more moderate inflationary impact related to higher remittances. The RER increases despite the decline in domestic prices since, in the denominator, the decline in the prices of a part of the traded goods (exports) is strong, and the relative price of domestic non-traded goods to traded goods increases. In line with the appreciation of the RER, exports decline; pointing to a loss in competitiveness. In short, an important decline in the price of exports on the international market would reduce the income of the population and increase the reliance on remittances which in turn has a negative impact on competitiveness and depresses exports.

# **C. Back to the Future: A Simple General Equilibrium Analysis of Dutch Disease in Modern Lebanon**

After the First World War, Lebanon was extended beyond Mount Lebanon to its current borders to include larger farming lands. The famine had claimed the lives of one-third of the population and, while emigration continued, it was much lower than the pre-war levels. Between 1920 and 1950, the country developed a more diversified economy and abandoned the mono-industry model of the silk era. Remittances continued to play an important role, but less than in 1880-1914. In the late 1950s, social and economic transformations drove growing numbers of the rural population out of their areas. Some of them emigrated, but the largest part settled in cities. The second generation of this new urban population had access to better education and was attracted by the booming economies of the oil rich countries of the Gulf, starting in the early 1970s. Since that period, remittances and foreign inflows have become once again a major element of GNDI. The war of 1975-1990 triggered a large outmigration and increased the reliance on foreign inflows, since large segments of the economy were severely damaged due to the direct and indirect consequences of the war. In the following paragraphs, I will be considering foreign inflows as a whole, since the development of the banking sector reduced the boundaries between remittances and capital inflows, making it possible to examine the economic impact of the two variables combined.

# **_1. Reliance on Inflows and Transfers in Modern Lebanon: A View through National Accounts_**

The National Accounts of Lebanon reflect the strong impact of the war on the Lebanese economy in terms of reduction in productive capacities and structural reliance on foreign inflows. Through extensive destruction of capital, the war reduced the productive capacities of the economy and increased the reliance on imports financed by substantial flows of income, transfers, and capital. Table 5 compares the structures of GDP and external accounts between the pre-war period (1972), the aftermath of the war (1994) and 2004. I chose 2004 because it is the year when the post-war reconstruction era ended. The champion of that era, former PM Rafik Hariri was assassinated in February 2005. Since then, no other economic and political project was proposed to the Lebanese society, and the rulers focused on extending the life of the post-reconstruction system they inherited from Mr. Hariri, until the system collapsed by end 2019.

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