Dynamic relationships between oil revenue, government spending and economic growth in Oman
Article Metrics Report
Views, downloads, citations, engagementCited by
Current citation countResearch summary
This paper investigates the short-run and long-run relationships between three main macroeconomic variables in Oman using the Johansen multivariate co-integration techniques as well as the stationary VAR for the period between 1971 and 2013. The results indicate that there is a long-run relationship between these three macroeconomic variables; the real GDP, the real government expenditure and the real oil revenues. The estimated coefficients for the real oil revenues and the real government expenditure are correctly signed and statistically significant at 5% level. Both variables depict positive relationship with GDP which are 0.672 and 0.872 respectively. The impulse response functions and the variance decomposition from the stationary VAR show that these variables are very important to the short-run dynamics of the Omani economy. Overall, government expenditure appears to be the main source for economic growth in long-run, and in short run variations in government expenditure are generally derived by oil revenue shocks. Therefore, the volatility in oil revenue requires public expenditure management reforms and the need to diversify income sources in order to enhance economic stability and growth.
Article History
How to Cite
Ahmad, A. H. & Masan, S.. (2015). Dynamic relationships between oil revenue, government spending and economic growth in Oman. International Journal of Business and Economic Development, Volume 03 Issue 2.
Citation Context
APA
Ahmad, A. H. & Masan, S.. (2015). Dynamic relationships between oil revenue, government spending and economic growth in Oman. International Journal of Business and Economic Development, Volume 03 Issue 2.
MLA
Ahmad, Ahmad Hassan, and Saleh Masan. "Dynamic relationships between oil revenue, government spending and economic growth in Oman." International Journal of Business and Economic Development, Volume 03 Issue 2, 2015.
Chicago
Ahmad Hassan Ahmad and Saleh Masan. "Dynamic relationships between oil revenue, government spending and economic growth in Oman." International Journal of Business and Economic Development Volume 03 Issue 2 (03 Sep 2015).
Harvard
Ahmad, A. H. & Masan, S. (2015) Dynamic relationships between oil revenue, government spending and economic growth in Oman. International Journal of Business and Economic Development, Volume 03 Issue 2
References
- Algieri, B., 2011. The Dutch Disease: evidences from Russia. Econ Change Restruct, 44(3), pp. 243-277.
- Aliyu, S.U.R., 2009. Impact of oil price shock and exchange rate volatility on economic growth in Nigeria: an empirical investigation.
- Aruwa, S.A., Public finances and economic growth in Nigeria.
- Atkinson, G. & Hamilton, K., 2003. Savings, Growth and the Resource Curse Hypothesis. World Development, 31(11), pp. 1793-1807.
- Berument, M.H., Ceylan, N.B. & Dogan, N., 2010. The Impact of Oil Price Shocks on the Economic Growth of Selected MENA Countries. Energy Journal, 31(1), pp. 149-176.
- Blattman, C., Hwang, J. & Williamson, J.G., 2007. Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870–1939. Journal of Development Economics, 82(1), pp. 156-179.
- Bleaney, M. & Halland, H., 2009. The resource curse and fiscal policy volatility.
- Cologni, A. & Manera, M., 2013. Exogenous oil shocks, fiscal policies and sector reallocations in oil producing countries. Energy Economics, 35(0), pp. 42-57.
- Cunado, J. & Perez de Gracia, F., 2005. Oil prices, economic activity and inflation: evidence for some Asian countries. The Quarterly Review of Economics and Finance, 45(1), pp. 65-83.
- El Anshasy, A.A. & Bradley, M.D., 2012. Oil prices and the fiscal policy response in oil-exporting countries. Journal of Policy Modeling, 34(5), pp. 605-620.
- Eltony, M.N. & Al-Awadi, M., 2001. Oil price fluctuations and their impact on the macroeconomic variables of Kuwait: a case study using a VAR model. International Journal of Energy Research, 25(11), pp. 939-959.
- Emami, K. & Adibpour, M., 2012. Oil income shocks and economic growth in Iran. Economic Modelling, 29(5), pp. 1774-1779.
- Farzanegan, M.R., 2011. Oil revenue shocks and government spending behavior in Iran. Energy Economics, 33(6), pp. 1055-1069.
- Farzanegan, M.R. & Markwardt, G., 2009. The effects of oil price shocks on the Iranian economy. Energy Economics, 31(1), pp. 134-151.
- Frankel, J.A., 2010. The natural resource curse: a survey.
- Frankel, J.A., 2012. The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions.
- Gylfason, T., 2001. Natural resources, education, and economic development. European Economic Review, 45(4–6), pp. 847-859.
- Gylfason, T. & Zoega, G., 2006. Natural Resources and Economic Growth: The Role of Investment. World Economy, 29(8), pp. 1091-1115.
- Hamdi, H. & Sbia, R., 2013. Dynamic relationships between oil revenues, government spending and economic growth in an oil-dependent economy. Economic Modelling, 35(0), pp. 118-125.
- Hausmann, R. & Rigobon, R., 2003. An alternative interpretation of the'Resource Curse': theory and policy implications.
- Iimi, A., 2006. Did Botswana escape from the resource curse?
- Isham, J., Woolcock, M., Pritchett, L. & Busby, G., 2005. The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth. The World Bank Economic Review, 19(2), pp. 141-174.
- Ismail, K. & Arezki, R., 2010. Boom-Bust Cycle, Asymmetrical Fiscal Response and the Dutch Disease.
- Ito, K., 2008. Oil Prices and Macro-economy in Russia: The Co-integrated VAR Model Approach. Notes, 9(3.841), p. 12.517.
- Kronenberg, T., 2004. The curse of natural resources in the transition economies*. Economics of Transition, 12(3), pp. 399-426.
- Mashayekhi, A.N., 1998. Public finance, oil revenue expenditure and economic performance: a comparative study of four countries. System Dynamics Review, 14(2‐3), pp. 189-219.
- Mehrara, M., 2008. The asymmetric relationship between oil revenues and economic activities: The case of oil-exporting countries. Energy Policy, 36(3), pp. 1164-1168.
- Mehrara, M., 2009. Reconsidering the resource curse in oil-exporting countries. Energy Policy, 37(3), pp. 1165-1169.
- Mehrara, M., Maki, M. & Tavakolian, H., 2010. The relationship between oil revenues and economic growth, using threshold methods (the case of Iran). OPEC Energy Review, 34(1), pp. 1-14.
- Mehrara, M. & Oskoui, K.N., 2007. The sources of macroeconomic fluctuations in oil exporting countries: A comparative study. Economic Modelling, 24(3), pp. 365-379.
- Mikesell, R.F., 1997. Explaining the resource curse, with special reference to mineral-exporting countries. Resources Policy, 23(4), pp. 191-199.
- Papyrakis, E. & Gerlagh, R., 2004. The resource curse hypothesis and its transmission channels. Journal of Comparative Economics, 32(1), pp. 181-193.
- Papyrakis, E. & Gerlagh, R., 2006. Resource windfalls, investment, and long-term income. Resources Policy, 31(2), pp. 117-128.
- Reyes-Loya, M.L. & Blanco, L., 2008. Measuring the importance of oil-related revenues in total fiscal income for Mexico. Energy Economics, 30(5), pp. 2552-2568.
- Ricardo Hausmann & Rigobon, R., 2003. An Alternative Interpretation of the 'Resource Curse': Theory and Policy Implications. NBER Working: IMF Paper No. 9424.
- Shaxson, N., 2005. New approaches to volatility: dealing with the ‘resource curse’ in sub-Saharan Africa. International Affairs, 81(2), pp. 311-324.
- Stevens, P. & Dietsche, E., 2008. Resource curse: An analysis of causes, experiences and possible ways forward. Energy Policy, 36(1), pp. 56-65.
- Tazhibayeva, Kamilya, Husain, Aasim M. and Ter-Martirosyan, Anna, (2008), Fiscal Policy and Economic Cycles in Oil-Exporting Countries, No 08/253, IMF Working Papers, International Monetary Fund.
- Tijerina–Guajardo, J.A. & Pagán, J.A., 2003. Government Spending, Taxation, and Oil Revenues in Mexico. Review of Development Economics, 7(1), pp. 152-164.
- Van der Ploeg, F. & Poelhekke, S., 2009. Volatility and the natural resource curse. Oxford Economic Papers, 61(4), pp. 727-760.
- Villafuerte, M. & Lopez-Murphy, P., Fiscal Policy in Oil Producing Countries during the Recent Oil Price Cycle.
- Williams, A., 2011. Shining a Light on the Resource Curse: An Empirical Analysis of the Relationship between Natural Resources, Transparency, and Economic Growth. World Development, 39(4), pp. 490-505.