The Linkage Between the Oil and Non-Oil Sectors - A Panel VAR Approach
26 Pages Posted: 25 May 2010
Date Written: May 2010
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 oil-based 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.
Keywords: Angola, Cross country analysis, Economic growth, Economic models, Exchange rate appreciation, Natural resources, Nonoil sector, Oil exporting countries, Oil sector, Political economy, Real effective exchange rates
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