Abstract
The goal of this paper is to analyze the impact of OPEC’s oil price level versus oil supply strategy on the country’s gross domestic product (GDP) growth rate. Our motivation comes from a fundamental dilemma facing OPEC nations. Its members need to choose between the traditional OPEC cartel policy of setting quotas to target a certain oil price level versus that of choosing the oil output level that maximizes profits of oil producing firms. The main objective of this research is to investigate the relative efficiency of these two policies in promoting long-run economic growth in oil exporting countries. For that purpose, it uses time-varying parameter models in order to account for multiple structural breaks that characterize the crude oil market. This paper contributes to the oil and macroeconomics literature by showing that the impact of crude oil output on oil exporters’ GDP growth is much stronger than that of oil price fluctuations.
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