The Linkage between the Oil and Non-oil Sectors: A Panel VAR Approach
Recent empirical studies have shown an inverse relation between natural resource intensity and long-term growth, implying that the natural resources generally impede economic growth through various channels (the â€œnatural resource curseâ€). This paper departs from these studies by exploring the intersectoral linkages between oil and non-oil sectors in a cross-country perspective. The paper shows that the applicability of â€œnatural resource curseâ€ across oilbased economies should be treated with caution as the externalities of the oil sector highly depend on the countriesâ€™ degree of oil-intensity. In particular, the results show that, in low oil-intensity economies, the incentives to strengthen both fiscal and private sector institutions lead to positive inter-sectoral externalities. In contrast, weaker incentives in high oil-intensity economies adversely affect fiscal and private sector institutions and consequently lead to negative inter-sectoral externalities.
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