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Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers

Author

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  • Amany El-Anshasy

    (Department of Economics and Finance, United Arab Emirates University, UAE)

  • Kamiar Mohaddes

    (Faculty of Economics and Girton College, University of Cambridge)

  • Jeffrey B. Nugent

    (Department of Economics, University of Southern California, USA)

Abstract

This paper 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 a sample of 17 major oil producers over the period 1961—2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) 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, not the abundance of oil revenues as such.
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Suggested Citation

  • Amany El-Anshasy & Kamiar Mohaddes & Jeffrey B. Nugent, 2015. "Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers," Working Papers EPRG 1513, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1513
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    Cited by:

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    2. Kamiar Mohaddes & Mehdi Raissi, 2019. "The US oil supply revolution and the global economy," Empirical Economics, Springer, vol. 57(5), pages 1515-1546, November.
    3. Mohaddes, Kamiar & Raissi, Mehdi, 2017. "Do sovereign wealth funds dampen the negative effects of commodity price volatility?," Journal of Commodity Markets, Elsevier, vol. 8(C), pages 18-27.
    4. Burney, Nadeem A. & Mohaddes, Kamiar & Alawadhi, Ahmad & Al-Musallam, Marwa, 2018. "The dynamics and determinants of Kuwait's long-run economic growth," Economic Modelling, Elsevier, vol. 71(C), pages 289-304.
    5. Guan, Lu & Zhang, Wei-Wei & Ahmad, Ferhana & Naqvi, Bushra, 2021. "The volatility of natural resource prices and its impact on the economic growth for natural resource-dependent economies: A comparison of oil and gold dependent economies," Resources Policy, Elsevier, vol. 72(C).
    6. Amiri, Hossein & Samadian, Farzaneh & Yahoo, Masoud & Jamali, Seyed Jafar, 2019. "Natural resource abundance, institutional quality and manufacturing development: Evidence from resource-rich countries," Resources Policy, Elsevier, vol. 62(C), pages 550-560.
    7. Arsham Reisinezhad, 2020. "Absorption capacity and Natural Resource Curse," PSE Working Papers halshs-03012661, HAL.
    8. Punzi, Maria Teresa, 2019. "The impact of energy price uncertainty on macroeconomic variables," Energy Policy, Elsevier, vol. 129(C), pages 1306-1319.
    9. UNDP Africa, 2016. "Primary Commodity Booms and Busts Emerging Lessons from Sub-Saharan Africa," UNDP Africa Reports 267623, United Nations Development Programme (UNDP).
    10. Pazouki, Azadeh & Zhu, Xiaoxian, 2022. "The dynamic impact among oil dependence volatility, the quality of political institutions, and government spending," Energy Economics, Elsevier, vol. 115(C).
    11. N. P. Ravindra Deyshappriya & I. A. D. D. W. Rukshan & N. P. Dammika Padmakanthi, 2023. "Impact of Oil Price on Economic Growth of OECD Countries: A Dynamic Panel Data Analysis," Sustainability, MDPI, vol. 15(6), pages 1-14, March.
    12. Samir Makdisi, 2022. "The Arab region: Development without democracya," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(1), pages 23-36, February.

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    More about this item

    Keywords

    Economic growth; natural resource curse; institutions; oil price volatility; oil income; macroeconomic polic;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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