Effectiveness of Sovereign Oil Funds as Instruments of Fiscal Stability: A Time-Series and Panel Data Analysis of the Relationship between Real Government Spending and Real Oil Export Earnings.

Abstract

To enrich the debate about the effectiveness of sovereign wealth funds, this paper explores the relationship between real government spending and real oil export revenues for a sample of six countries. This exploration uses an econometric analysis based on time-series data and its purpose is to evaluate if sovereign funds (more precisely sovereign oil funds, SOFs) have moderated government spending responses to oil revenue growth. We enhance this analysis by looking to the influence of the improvement of the political and economic environment (according to the Heritage Foundation index) on the relationship between real government spending and real oil export revenues. Then, for each one of our countries, we determine the influence of the establishment of SOFs on real government spending. We use also panel data regressions to have the confirmation of the influence of funds. Finally, we determine the effect of the improvement of the characteristics of SOFs (according to Truman’s SWF scoreboard) on the correlation between real government spending and real oil export earnings.