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

28 Pages Posted: 16 Dec 2011

See all articles by Kamiar Mohaddes

Kamiar Mohaddes

University of Cambridge - Judge Business School; University of Cambridge - King's College, Cambridge

Mehdi Raissi

International Monetary Fund (IMF) - Fiscal Affairs Department

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2011

Abstract

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

Keywords: Growth models, long run relations, Jordanian economy, remittances, FDI, oil price shocks, foreign output and inflation shocks, and error correcting relations

JEL Classification: C32, C53, E17, F43, F47, Q32

Suggested Citation

Mohaddes, Kamiar and Raissi, Mehdi, Oil Prices, External Income, and Growth: Lessons from Jordan (December 8, 2011). Available at SSRN: https://ssrn.com/abstract=1972571 or http://dx.doi.org/10.2139/ssrn.1972571

Kamiar Mohaddes (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

University of Cambridge - King's College, Cambridge ( email )

King's Parade
Cambridge, CB2 1ST
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

Mehdi Raissi

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

HOME PAGE: http://https://sites.google.com/site/mehdiraissi/

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