Investigating Bahrain business cycles

Abstract

The motive of this paper is to study and hence establish stylized facts for the small oil producing economy of Bahrain using time series techniques. This is done by estimating persistence in GDP and its two main components (oil and non-oil GDP) and by testing for the macroeconomic variables driving the non-oil business cycles. Applying these techniques to Bahrain data show: (i) GDP, non-oil GDP and oil GDP have little persistence, so that an innovation at the level of these series will have only transitory effects; and (ii) government expenditure is the only macro variable that Grangercauses non-oil business cycles.