Third time lucky for Algeria? Integrating and industrialising oil country into the global economy.

Since gaining independence Algeria has made two unsuccessful attempts at integration into the world economy. The first entailed forced industrialization. It used the windfall rents from the 1974–78 and 1979–81 oil booms to accelerate the process. However, the outcome conforms to the staple trap model: the resource rents consolidated a non-developmental political state, which repressed markets, misallocated capital and rendered the economy vulnerable to a growth collapse. The collapse duly occurred when oil rents fell in the late-1980s. The second attempt at global integration was driven by international financial institution (IFI)-backed reforms in the 1990s. It stabilized the economy but achieved insufficient economic restructuring to boost GDP growth to the level required to curb unemployment, which doubled to 30% of the workforce. These two failed attempts have left a legacy of formidable political opposition to economic reform. Therefore, this paper argues that Algeria’s third attempt at global integration should use the country’s still substantial oil rents to support gradual (dual track) reform, which creates a dynamic market sector that pulls surplus labor from the lagging politicized sector. The key attraction of gradual reform is that it lowers the political risk of restructuring because the gainers from reform can compensate the losers.