Economic Policy Strategies and Development Outcomes in the Middle East, 1950–2000: Evidence from Oil Revenues, Conflict, and Institutional Dynamics

While existing literature has considered the relationship between oil and conflict, most of the studies have failed to consider mechanisms that might mediate the effect of the fluctuating market price of oil on conflict. We theorize that the military capacity of the state is a key mediating mechanism for understanding the relationship between shifting oil market prices and conflict intensity. We argue that states which rely upon oil sales to fund a large portion of government spending will have a more difficult time maintaining conflict-reducing state capacity during times in which oil prices are below previously prevailing averages for extended lengths of time. Using country-year data in 67 conflict states from 1989–2019, we find that low average oil prices are associated with lower military spending which in turn is associated with higher rates of battle fatalities in existing civil conflicts.

As Algeria is considered among the rentier states that depend on oil revenues in the implementation of projects and development programs, like other rentier countries of the world, they are affected by fluctuations in oil prices in world markets, and any sudden shift in prices and the subsequent recession and prosperity in economic cycles are situations that policymakers find it difficult to manage effectively. The volatility of prices has exerted effects on the economic policies of the state as a result of monetary and trade policy and fiscal policy negatively affected and positively with the volume of volatile oil revenues, Algeria witnessed the positive and negative fluctuations of oil prices during the period 2000-2017, from the beginning of 2000 to 2014 known In fiscal terms through surpluses resulting from the high oil prices and in the period 2015-2017 has been characterized by a deficit in financial returns, so Algeria sought to take the necessary measures to stabilize its economy in both cases, through its adopted economic policy

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The influx of massive revenues during periods of abnormally high oil prices creates enormous challenges for policy‐makers in oil‐producing countries. In Nigeria, the prudent utilisation of oil revenues has remained elusive for policy‐makers over time. While the country has earned sizeable oil revenues from its natural endowment, poverty and income inequality have been persistent. This study tests the sensitivity of several important macroeconomic indicators to oil revenue shocks. We additionally test for the effect of ‘institutional quality’, in recognition of the important role played by the domestic institutional context in shaping the policy responses adopted by successive Nigerian governments to oil windfalls over time. The sensitivity analysis supports the general view that fluctuations in oil revenues have resulted in inflation, lower output growth and real exchange rate appreciation in Nigeria. More importantly, the aforementioned institutional variable is found to be very significant. This finding is consistent with the general assessment of fiscal performance in Nigeria during oil windfalls as being driven by domestic institutional dynamics. Ostentatious public consumption widened fiscal deficits, and government spending has been highly pro‐cyclical during windfall episodes. In conclusion, the study offers appropriate policy recommendations, which could be adopted to enhance the management of future oil windfalls in Nigeria.

There is a strong correlation between energy prices and economic activity. The relationship particularly holds true for crude oil as changes in oil prices are associated with changes in production costs, and economic activity also generates significant demand for energy and crude oil. This chapter examines the relationship between economic activity and crude oil prices using causality tests in the frequency domain and taking into account the difference between positive and negative changes in both oil prices and economic activity as the relationship can be asymmetric. The authors present empirical results for major emerging economies including Brazil, Russia, India, China, South Africa, and Turkey. Empirical results indicate that for most countries there is bidirectional causality between crude oil prices and economic activity whereas only negative oil price shocks seem to negatively affect economic activity.

Purpose: Policy makers, academics and journalists have frequently discussed the link between oil prices and exchange rate in recent years. After the 2014 World’s biggest oil price drop that plunge CEMAC oil exporting countries into an external liquidity strain, due to the pressure raised on Euro to which CFA franc is pegged, this paper revisits the dependence between crude oil price changes and exchange rate.
 Methodology: Crude oil price is the main independent variable, though other independent variables have been considered. The change in crude oil price is captured through differentiation of average yearly crude oil prices. The real effective exchange rate (RER) is the dependent variable, captured with the consumer’s price index (CPI), which describes the strength of a currency relative to a basket of other currencies. The data used in this study were extracted from Word Bank Development Indicators (WBDI, 2020) and World Bank Commodity Price Data. The study covers the period 1990-2018. The main channels of transmission used in this paper are the terms of trade channel, the wealth or portfolio channel and the anticipation or expectation channel. A panel autoregressive distributive lag (ARDL) model was used.
 Findings: The result shows that there is a short run positive and insignificant effect of oil price changes on exchange rate of CEMAC oil producing countries. In the long-run, there is rather a negative and significant impact of oil price changes on exchange rate. More concretely, a unit increase in oil prices depreciates exchange rate of these countries by 0.4340 units and this is significant at 1%. The short run Cross-country analysis shows that the effect is negatively significant for Cameroon and Chad; positive and significant for Democratic Republic of Congo and Equatorial Guinea; but positive and not significant for Gabon. These results are likely linked to structural differences between countries as the dependence on oil revenue and the security situation are concerned.
 Recommendations: Given this negative long run damage of oil prices on exchange rate of CEMAC oil producing countries, it is highly advisable these countries increase direct investments in key economic non-oil sectors in order to reduce dependence. On the other hand, considering the unidirectional causality from exchange rate to oil prices, a policy of exchange rate anchor by BEAC is suitable in order to absorb the shock of oil price changes on exchange rate and eventually inflation in the these economies.

Oil price and stock returns of consumers and producers of crude oil

We evaluate the probability that oil prices affect excess stock returns for U.S. listed firms. The probabilities are obtained from a time-varying multi-factor asset pricing framework estimated using dynamic model averaging techniques, including oil price information among several other possible risk factors. Two widely used oil price measures are considered, one based on raw oil price changes and another based on disentangling the source of oil price changes due to supply-side or demand-side effects. As far as we know our dataset, which comprises 10,118 stock price series with up to 25,372,588 observations between 1995-2018, is the most comprehensive used for this purpose. We develop two “beauty-contests” in which we estimate the multi-factor models separately for individual stocks, for each of the two oil price measures. The results suggests that, when working with daily data (beauty contest 1), oil price changes are a significant (important) determinant for around 1-3% of the sample. When using oil price shocks-as opposed to oil price changes-(beauty contest 2) this percentage increases to 27-45%, suggesting that oil supply and demand shocks (as opposed to oil price changes) can better explain firm-level excess returns, at least for monthly frequency data where such a decomposition is available. We provide evidence that the increase in percentage is only partially attributable to data-frequency, and more likely attributed to the decomposition into supply/demand driven oil price changes. We reconcile differences between our findings and those reported in previous literature on the basis of the fully dynamic nature of our adopted methodology.

Sensitivity to changes in oil prices, tax returns and the cross-section of stock returns: The present situation for net-oil exporting economies

The global economy is highly dependent on oil due to its densely use as a primary energy source. For this reason, changes in oil prices can affect countries through many economic and environmental channels. Based on this motivation, in this study, the relations between oil prices, oil consumption and environmental degradation are investigated with Hatemi-J (2012) asymmetric causality analysis, which takes into account positive and negative shocks, in Turkey in the 1987-2020 periods. Empirical findings show that there are causal links between oil prices, oil consumption and environmental degradation in Turkey differs according to positive and negative shocks. According to this; negative shocks in oil consumption and positive shocks in oil prices cause positive shocks in environmental degradation, negative shocks in environmental degradation cause positive shocks in oil consumption and negative shocks in oil prices cause negative shocks in environmental degradation. Although there is no causal relationship between oil prices and oil consumption, environmental degradation is associated with both oil prices and oil consumption. These findings reveal that oil should be considered as an important component in environmental improvement policies in Turkey.

We have developed a model of oil price jumps caused by oil supply disruptions. The core of the model is a compact general equilibrium model of oil demand. Given an exogenous forecast of oil supply and potential GNP for the world, the model can forecast the oil price, real GNP, and value added for the world. The data base for the model consists of historical time series of world oil supply, world oil price, and growth rates for world GNP. The data demonstrate that small changes in oil supply are associated with large changes in oil price. If a large change in oil price causes a small change in oil consumption, the short-run price elasticity of demand must be small. We have specified a model with a short-run and a long-run price elasticity. The six parameters in the model have been estimated using historical data for three cases. The initial model had five parameters. For Case 1, we used a search procedure to determine the parameters that minimized the root mean square (RMS) of the differences between the price backcast by the model and the historical data on oil price. We found that the RMS error was 121% and that the price calculated by the model was too low for the period from 1974 to 1980. After a review of the historical data on oil consumption, oil price, and world GNP, we concluded that the response of the world oil market to the 1974 oil price shock was different than the response to the 1979-80 oil price shock. To improve the model's capacity to simulate the historical data, we introduced a technological change factor that increases the demand for oil in the period from 1971 to 1979. For Case 2, the rate of technological change is 3.8% and the RMS error is 35%. For Case 3, the rate of technological change is 7.0% and the RMS error is 35%. Although Case 3 has the smallest error, we concluded that the Case 2 set of parameters provided the best match for the historical data on world oil price. 13 refs., 9 figs., 1 tab.

A compact model of oil supply disruptions

The rentier state thesis was proposed to explain the unique political and economic nature of governance in resource-rich countries starting in the 1970s. The wealth in a rentier state is usually accrued through extraction and selling of valuable natural resources under the full control of the government which is mainly directed by a ruling elite group. Nigeria is described as a ‘rentier state’ as a result of its mono-economy in which oil rents play a dominant part. The paper examines the rentier state syndrome in Nigeria and how it affects tax revenues, which are largely based on non-oil sector development. The Rentier State Theory was adopted as the theoretical framework of the study. A documentary research design was used for the study. Data collection was done using secondary sources while data analysis involved the use of descriptive statistics and content analysis. Findings of the study revealed that oil revenue has over the years surpassed tax revenue and remains the mainstay of the Nigerian economy. It also showed that the imbalance between tax revenues and resource rents in Nigeria is due to quick profits from oil; opportunistic rent seeking and rent grabbing; weak private sector; and the desire by political elites to undermine transparency and accountability that comes with a functional tax system. The study recommends economic diversification, deregulation, digitalization and tax transparency as mechanisms for sustaining tax revenues in Nigeria’s rentier economy.

The direction of economic development depends on the paradigmatic framework in which economic reality is perceived. In the framework of holistic paradigm also public and not only private goods are understood as economic goods. Correspondingly, the public sector is enclosed into economy. The individualistic approach presupposes reduction of economic reality to market and overtly or covertly negative attitude towards public sector as non-economic. The phenomenon of reflexiveness is present here. Methodological holism and methodological individualism give birth to different strategies of economic policy and finally lead to different outcomes of economic development.

ABSTRACTThe existing literature on demand for crude oil in developed and developing countries typically assumes that the effects of oil price changes are symmetric. In this paper, we use the nonlinear autogressive distributed lag (ARDL) approach of Shin et al. (2014) and test whether the effect of oil price changes on demand for imported crude oil is symmetric or asymmetric in the case of Korea. Using quarterly data over the last two decades, the results show that the oil price effects are indeed asymmetric in the long run; Korea’s imported demand for crude oil is more responsive to oil price spikes than to oil price plunges. However, the asymmetric effects are not observed in the short run.