Abstract
The drop of oil prices since the second half of 2014 have affected the credit risk and liquidity situation in Bahrain. Therefore, Bahrain have implemented substantial economic diversification in the economic structure including manufacturing, refining, tourism, trade and finance. With the recognition of the importance of governments expenditure restructuring, Bahrain government introduced number of initiatives such as streamlining government expenditure, increasing revenues, and redirecting government subsidies towards eligible citizens. Understanding the relationship between revenues, government spending and economic growth is an essential perception in evaluating the efficiency of government’s strategy in managing its resources and the impact on the standard of living in any country. This chapter examines the relationship between total government expenditure as well as sectoral government spending (specifically education and health sectors), oil revenues and the economic growth of Bahrain using time series data over the period 1989–2015. To achieve this aim, the vector error correction model (VECM) is employed. In order to ensure the sustainability of resources and maintain economic growth, Bahrain should continue managing its expenditure, by cutting down expenses on certain sectors through privatization, and increasing spending on health and education sectors.
Highlights
One of the Bahrain Government initiatives to set the foundation of the Improving Quality of Life - Exploring Standard of Living, Wellbeing, and Community Development economic diversification was through its long-run strategy procedure “Bahrain 2030 Vision” that was established in October 2008
The results show that oil and gas revenues have a positive impact on economic growth while the government expenditure affects economic growth negatively
When looking at the individual impact of education and health expenditure on economic growth, the estimation results indicate that both have a positive impact on economic growth of Bahrain
Summary
On the 2nd of June 1932, history was made in Bahrain when oil was discovered in the first well in “Jebel Al Dukhan” making it the leading country among the Arabian Gulf countries in oil discovery. Since the establishment of the first refinery, oil and gas have played a significant part in the economic side of Bahrain. This is translated in the value of the share of oil and gas revenues to total revenues of Bahrain. The Ministry of Finance reports show that the share of oil and gas revenues formed 60.4% of total revenues in 1990 and continued to increase and reached 87.8% in the year 2011. One of the Bahrain Government initiatives to set the foundation of the Improving Quality of Life - Exploring Standard of Living, Wellbeing, and Community Development economic diversification was through its long-run strategy procedure “Bahrain 2030 Vision” that was established in October 2008. Bahrain Government will be able to employ its resources in the investment in its human capital through training and education in the area of applied sciences
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