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Oil Prices, External Income, and Growth: Lessons from Jordan

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  • Mohaddes, K.
  • Raissi, M.

Abstract

This paper extends the long-run growth model of Esfahani et al. (2009) to a labour 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.

Suggested Citation

  • Mohaddes, K. & Raissi, M., 2011. "Oil Prices, External Income, and Growth: Lessons from Jordan," Cambridge Working Papers in Economics 1164, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1164
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cashin, Paul & Mohaddes, Kamiar & Raissi, Maziar & Raissi, Mehdi, 2014. "The differential effects of oil demand and supply shocks on the global economy," Energy Economics, Elsevier, vol. 44(C), pages 113-134.
    2. Kamiar Mohaddes & Mehdi Raissi, 2015. "The U.S. Oil Supply Revolution and the Global Economy," IMF Working Papers 15/259, International Monetary Fund.
    3. Tobias N. Rasmussen & Agustin Roitman, 2011. "Oil Shocks in a Global Perspective; Are they Really That Bad?," IMF Working Papers 11/194, International Monetary Fund.
    4. Cashin, P. & Mohaddes, K. & Raissi, M., 2012. "The Global Impact of the Systemic Economies and MENA Business Cycles," Cambridge Working Papers in Economics 1250, Faculty of Economics, University of Cambridge.
    5. Arlan Brucal & Michael Abrigo, 2017. "Can Cheap Oil Hurt Net Importers? Evidence from the Philippines," Working Papers id:12323, eSocialSciences.

    More about this item

    Keywords

    Growth models; long-run relations; Jordanian economy; remittances; FDI; oil price shocks; foreign output and in?ation shocks; and error correcting relations.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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