Relationship between Oil Prices and Economic Growth in GCC Countries

Abstract

This study explores the relations between Oil Prices (OP) and Gross Domestic Product (GDP) per capita in Gulf Cooperation Council (GCC) countries using the asymmetric causality test for the period of 1996-2018. The results of the standard bootstrap causality test reveal bidirectional causality between the OP and the GDP per capita in Qatar and Saudi Arabia. The results of asymmetric causality tests are different for some countries, which demonstrate the unidirectional causality running from OP+ to GDP+ in Oman and Saudi Arabia. Whereas, the bidirectional causality exists between the GDP- and OP- in Kuwait and Oman and unidirectional causality exists between the OP- and the GDP- per capita in Bahrain, Qatar, and UAE. The results support the Real Business Cycle Theory (RBC Theory), which states that external positive or negative shocks have significant impact on GDP per capita through consumption and investment channels. GCC countries should channelize the huge revenues towards other private sectors, which will create more prospects for the GDP and will provide substitution in case of arising any crisis. In addition, the GCC countries must diversify their economic activities since the OP are quite volatile and uncertain and the revenues of these countries are dependent on the OP to a large extent. Sustainable development can be achieved through a balanced path between government expenditures and future savings.