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

22 Pages Posted: 5 May 2017

See all articles by Amany El-Anshasy

Amany El-Anshasy

United Arab Emirates University (UAEU)

Kamiar Mohaddes

University of Cambridge - Faculty of Economics and Politics; University of Cambridge - Girton College

Jeffrey B. Nugent

University of Southern California - Department of Economics

Date Written: 2017-04-01

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.

JEL Classification: C23, E02, F43, O13, Q32

Suggested Citation

El-Anshasy, Amany and Mohaddes, Kamiar and Nugent, Jeffrey B., Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers (2017-04-01). Globalization and Monetary Policy Institute Working Paper No. 310. Available at SSRN: https://ssrn.com/abstract=2962915 or http://dx.doi.org/10.24149/gwp310

Amany El-Anshasy (Contact Author)

United Arab Emirates University (UAEU)

P.O. Box 15551
Al-Ain
United Arab Emirates

Kamiar Mohaddes

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+44 (0) 1223338904 (Phone)

HOME PAGE: http://people.ds.cam.ac.uk/km418

University of Cambridge - Girton College ( email )

Cambridge, CB3 0JG
United Kingdom
+44 (0)1223 338999 (Phone)
+44 (0)1223 338896 (Fax)

HOME PAGE: http://people.ds.cam.ac.uk/km418

Jeffrey B. Nugent

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
510-740-2107 (Phone)
510-740-8543 (Fax)

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