Constructing a Social Accounting Matrix: Concepts and Use in Economic Policy Analysis

The objective of this paper was to construct a social accounting matrix (SAM) and show how it can be used to determine the economy-wide and sectoral effects of external shocks and various policy options available using Oman as a model. We first constructed an aggregate SAM (macro SAM) based on the country’s national accounts which provided the control totals for a multisectoral, multi-institutional SAM. Then, we used the SAM to derive the multiplier matrix coefficients and simulated the effects of four policy scenarios: 1) an increase in agricultural and manufacturing exports (diversification scenario), 2) an increase in oil export value, 3) a reduction in worker remittances, and 4) an income transfer to rural households (equity scenario). Results showed that the diversification scenario had the largest overall production multiplier, while the increase in oil export price scenario had the highest impact on government revenue, balance of trade and saving. The remittance control scenario had the highest impact on total household income but most of the income increase went to urban households. The equity scenario had the second largest increase on household income, mostly rural income, but the least effect on saving, and trade balance. The policy implications of these simulations are not clear-cut. In addressing development issues, policy makers would need to use a combination of policy instruments to achieve a specific objective.