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The Linkage between the Oil and Non-oil Sectors; A Panel VAR Approach

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  • Nir Klein

Abstract

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 “natural resource curse”). 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 “natural resource curse” across oilbased economies should be treated with caution as the externalities of the oil sector highly depend on the countries’ 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.

Suggested Citation

  • Nir Klein, 2010. "The Linkage between the Oil and Non-oil Sectors; A Panel VAR Approach," IMF Working Papers 10/118, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/118
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    References listed on IDEAS

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    1. Xavier Sala-i-Martin & Arvind Subramanian, 2013. "Addressing the Natural Resource Curse: An Illustration from Nigeria," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 22(4), pages 570-615, August.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Paul Collier & Anke Hoeffler, 2005. "Resource Rents, Governance, and Conflict," Journal of Conflict Resolution, Peace Science Society (International), vol. 49(4), pages 625-633, August.
    4. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
    5. Mauricio Villafuerte & Rolando Ossowski & Theo Thomas & Paulo A Medas, 2008. "Managing the Oil Revenue Boom; The Role of Fiscal Institutions," IMF Occasional Papers 260, International Monetary Fund.
    6. Verner, Dorte & Fiess, Norbert M., 2003. "Oil, agriculture, and the public sector: linking intersector dynamics in Ecuador," Policy Research Working Paper Series 3094, The World Bank.
    7. Osmel Manzano & Roberto Rigobon, 2001. "Resource Curse or Debt Overhang?," NBER Working Papers 8390, National Bureau of Economic Research, Inc.
    8. Atsushi Iimi, 2007. "Escaping from the Resource Curse: Evidence from Botswana and the Rest of the World," IMF Staff Papers, Palgrave Macmillan, vol. 54(4), pages 663-699, November.
    9. Dhaneshwar Ghura & Rina Bhattacharya, 2006. "Oil and Growth in the Republic of Congo," IMF Working Papers 06/185, International Monetary Fund.
    10. Murshed, S. Mansoob, 2004. "When Does Natural Resource Abundance Lead to a Resource Curse?," Discussion Papers 24137, International Institute for Environment and Development, Environmental Economics Programme.
    11. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
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    Cited by:

    1. International Monetary Fund, 2011. "Republic of Kazakhstan; Selected Issues," IMF Staff Country Reports 11/151, International Monetary Fund.
    2. Rolando Ossowski & Alberto Gonzáles-Castillo, 2012. "Manna from Heaven: The Impact of Nonrenewable Resource Revenues on Other Revenues of Resource Exporters in Latin America and the Caribbean," IDB Publications (Working Papers) 4045, Inter-American Development Bank.
    3. José Fuinhas & António Marques & Alcino Couto, 2015. "Oil rents and economic growth in oil producing countries: evidence from a macro panel," Economic Change and Restructuring, Springer, vol. 48(3), pages 257-279, November.
    4. José Alberto Fuinhas & António Cardoso Marques & Alcino Pinto Couto, 2015. "Oil-Growth Nexus in Oil Producing Countries: Macro Panel Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 148-163.

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