Abstract
PurposeThis paper aims to explore the extreme effect of crude oil price fluctuations and its volatility on the economic growth of Middle East and North Africa (MENA) countries. It also investigates the asymmetric and dynamic relationship between oil price and economic growth. Further, a separate analysis for each MENA oil-export and oil-import countries is conducted. Furthermore, it studies to what extent the quality of institutions will change the effect of oil price fluctuations on economic growth.Design/methodology/approachAs the effect of oil price fluctuations is not the same over different business cycles or oil price levels, the paper uses a panel quantile regression approach with other linear models such as fixed effects, random effects and panel generalized method of moments. The panel quantile methodology is an extension of traditional linear models and it has the advantage of exploring the relationship over the different quantiles of the whole distribution.FindingsThe paper can summarize results as following: changes in oil price and its volatility have an opposite effect for each oil-export and oil-import countries; for the former, changes in oil prices have a positive impact but the volatility a negative effect. While for the latter, changes in oil prices have a negative effect but volatility a positive effect. Further, the impact of oil price changes and their uncertainty are different across different quantiles. Furthermore, there is evidence about the asymmetric effect of the oil price changes on economic growth. Finally, accounting for institutional quality led to a reduction in the impact of oil price changes on economic growth.Originality/valueThe study concludes more detailed results on the impact of oil prices on gross domestic product growth. Thus, it can be used as a decision-support tool for policymakers.
Highlights
Energy plays the most critical role in the global economy
The current study explores the effect of fluctuations in oil price, the volatility of oil price, the asymmetry in the impact of crude oil price on the real product of the Middle East and North Africa (MENA) countries over a long period
The paper uses the Q.R. approach to get a whole image of the distribution of the underlying relationship
Summary
Despite the increasing debate around the role of alternate renewable sources of energy such as water, solar and nuclear power, oil still has a central role for a vast portion of the world’s countries. Oil price shocks might have considerable macroeconomic consequences for both importing and exporting countries. As for the former category, oil is a major determinant of production cost and for the latter, it is the primary source of government revenue. The full terms of this licence maybe seen at http:// creativecommons.org/licences/by/4.0/legalcode
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