Kazakhstan - The Real Currency and Growth Challenge for Commodity Producing Countries

Abstract

Kazakhstan possesses extensive natural resources and relies heavily on revenues from the export of primary commodities, in particular petroleum and natural gas. Kazakhstan’s dependence on revenues from the oil sector raises the possibility that the economy is vulnerable to external commodity price fluctuations. The goal of this paper is to examine the relationship between real GDP, real exchange rate and oil prices using time series data for the period 2000–2010. Multivariate VAR analysis and Granger causality tests were carried out using both linear and non-linear specifications of oil price changes. The paper finds evidence of both linear and non-linear impact of oil price shocks on real GDP and real exchange rate. It is found that one of the key channels playing a role in the effect of oil prices on real activity is related to the real effective exchange rate. Though, oil price changes do not have a direct impact on real GDP of Kazakhstan, they indirectly affect it through their effect on real exchange rate. Indeed, results of the Wald, the Granger multivariate causality, and Likelihood Ratio tests indicate that linear price change and all the other oil price transformations are significant for the system as a whole. In particular, asymmetric oil price increases in the non-linear models are found to have positive impact on real GDP growth of a larger magnitude than asymmetric oil price decreases adversely affects real GDP.