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Institutions and Macroeconomic Policies in Resource-Rich Arab Economies$
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Kamiar Mohaddes, Jeffrey B. Nugent, and Hoda Selim

Print publication date: 2019

Print ISBN-13: 9780198822226

Published to Oxford Scholarship Online: July 2019

DOI: 10.1093/oso/9780198822226.001.0001

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Oil, Volatility, and Institutions

Oil, Volatility, and Institutions

Cross-Country Evidence from Major Oil Producers

Chapter:
(p.52) 3 Oil, Volatility, and Institutions
Source:
Institutions and Macroeconomic Policies in Resource-Rich Arab Economies
Author(s):

Amany El-Anshasy

Kamiar Mohaddes

Jeffrey B. Nugent

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198822226.003.0003

This chapter examines the long-run effects of oil revenue and its volatility on economic growth, as well as the role of institutions in this relationship. We collect annual and monthly data on 17 major oil producers between 1961 and 2013, and use the panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity, and cross-sectional dependence. The results suggest that: (i) oil revenue volatility has a significant negative effect on output growth; (ii) a higher growth rate of oil revenue significantly raises economic growth; and (iii) better fiscal policy can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox.

Keywords:   economic growth, resource curse, institutions, oil revenue, volatility, fiscal policy

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