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Oil Prices, External Income, and Growth

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  • Mehdi Raissi
  • Kamiar Mohaddes

Abstract

This paper extends the long-run growth model of Esfahani et al. (2009) to a labor exporting country that receives large inflows of external income?the sum of remittances, FDI and general government transfers?from major oil-exporting economies. The theoretical model predicts real oil prices to be one of the main long-run drivers of real output. Using quarterly data between 1979 and 2009 on core macroeconomic variables for Jordan and a number of key foreign variables, we identify two long-run relationships: an output equation as predicted by theory and an equation linking foreign and domestic inflation rates. It is shown that real output in the long run is shaped by: (i) oil prices through their impact on external income and in turn on capital accumulation, and (ii) technological transfers through foreign output. The empirical analysis of the paper confirms the hypothesis that a large share of Jordan''s output volatility can be associated with fluctuations in net income received from abroad. External factors, however, cannot be relied upon to provide similar growth stimuli in the future, and therefore it will be important to diversify the sources of growth in order to achieve a high and sustained level of income.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/291.

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Length: 34
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/291

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Keywords: Foreign direct investment; Capital inflows; Economic growth; Economic models; External shocks; Income; Oil prices; Workers remittances; equation; statistics; statistic; equations; cointegration; exporting countries; output growth; econometrics; trading partners; oil exporters; balance of payments; balance of payments crisis; significance level; open economy; exchange rate regime; significance levels; standard error; domestic economy; trading partner; linear trend; bootstrap; dummy variable; heteroscedasticity; correlation; logarithm; outliers; oil shock; equilibrium model; trade partners; world markets; samples; fixed capital formation; asymptotic distribution; increased trade; confidence intervals; standard errors; outward-oriented growth; world economy; deterministic variable; time series; explanatory power; domestic prices; time series analysis; bilateral trade; export sector; stationary process; forecasting; regional trade; price stability; import costs; functional form; trade barriers; oil revenues; general equilibrium model; financial statistics; foreign trade; high trade barriers; empirical validity; statistically significant effect; transfer of technology; aggregate demand; output volatility;

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  1. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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Cited by:
  1. Cashin, P. & Mohaddes, K. & Raissi, M. & Raissi, M., 2012. "The Differential Effects of Oil Demand and Supply Shocks on the Global Economy," Cambridge Working Papers in Economics 1249, Faculty of Economics, University of Cambridge.
  2. Paul Cashin & Kamiar Mohaddes & Mehdi Raissi, 2012. "The Global Impact of the Systemic Economies and MENA Business Cycles," IMF Working Papers 12/255, International Monetary Fund.
  3. Tobias N. Rasmussen & Agustin Roitman, 2011. "Oil Shocks in a Global Perspective," IMF Working Papers 11/194, International Monetary Fund.

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