Oil-dependent Countries Research Articles

Examining the asymmetric influence of tax revenue policy in an oil-dependent economy: evidence from Oman

Purpose This study aims to examine the asymmetric effects of tax revenue policies on the economic activity of Oman. Design/methodology/approach This study applies the nonlinear autoregressive distributed lag model and uses data from 1980 to 2022. Findings The findings confirmed that economic activity has a cointegrating relation with the positive and negative shocks of the tax revenue policy and selected macroeconomic variables. In addition, the long-run results show that positive changes in tax revenues have a positive significant effect on the economy, while negative shocks in tax revenues have a negative effect on the economy at the 5% significance level. The study concludes that a significant long-term asymmetric relationship exists between taxation policy changes through the revenue channel for the economy of Oman. Originality/value No previous study has specifically investigated the asymmetric impact of tax revenue policies on the economy of Oman, which is an oil-dependent country. To the best of the authors’ knowledge, this study is the first attempt to explore this relationship with respect to the Omani economy, and it uses extensive time series data and employs various contemporary econometric techniques. Given Oman’s reliance on oil and gas revenues, which typically fund approximately 70% of the country’s annual budget through taxation on oil and gas sold, fluctuations in global oil prices directly influence country’s fiscal position. Thus, this study contributes to the literature by empirically confirming the asymmetries impact of fiscal (tax) policies on Oman’s economy. The implication of the results suggests that the government cut back on tax incentives and tax exemptions for local and foreign businesses. This move can foster economic growth and reduce the negative competition effect among investors and taxpayers, which may ultimately improve the country’s tax revenue.

The Resource Curse Across Economies: A Comparative Analysis of Developed and Developing Resource-Rich Countries

This study investigates the relationship between natural resource rents and economic growth, focusing on a diverse sample of developed and developing economies. Using panel data (1998–2021) and robust estimation methods, it examines the roles of institutional quality, governance, economic diversification, and global demand in shaping outcomes across varying contexts. The findings reveal that the impact of resource rents on growth is complex, differing by resource type, income group, and governance quality. The resource curse is not inevitable; its negative effects are most pronounced in oil-dependent countries with poor governance and limited diversification. In contrast, gas and mineral rents provide more stable growth opportunities when effectively managed. Strong governance and diversification are essential to mitigate risks and maximize the benefits of resource rents. While stable global demand minimizes the impact of fuel price fluctuations on growth, mineral price volatility hampers growth in high- and low-income countries but not in middle-income ones, reflecting varying levels of dependency and resilience. This study’s key contribution lies in addressing the existing gap in the literature by analyzing the impact of resource rents across a diverse set of countries, integrating both developed and developing economies. To our knowledge, only a limited number of studies use mixed samples that encompass both. By doing so, this study provides a more comprehensive understanding of the heterogeneous effects of resource dependence, highlighting the role of institutional quality and economic structures across varying levels of development

Economic Diversification, Oil Revenue and Energy Transition in Oil Dependent Countries: A Wavelet Decomposition and Panel Data Approach

In oil-dependent countries, the energy transition process is ongoing and it appeals substantial and necessary adjustments in terms of diversification. We attempt to provide a systematic analysis of the connectedness between energy transition, oil revenue and economic diversification using novel econometric approach, wavelet decomposition and panel data estimation. Our attention will be focused on the dynamics and causal relationships between energy transition process and economic diversification by checking the role of oil revenue. We use second generation unit roots, and a particular attention is given to cross-sectional dependence of the series. Results show that correlations between wavelet components are absent in the short term, weak in the medium term, and moderate in the long-run. Causality tests support a bidirectional causality between economic diversification and energy transition and between economic diversification and net oil revenue, in the medium and long-run scale levels. Our results would have several prominent implications for policy makers, in oil-dependent countries, when designing energy transitions and economic diversifications strategies, and gives and insightful look about the future of these countries.

Exploring the sources of systemic risk and trading strategies in energy and stock markets

This study aims to investigate the impact of the energy transition on asset pricing by analyzing the different sources of systemic risk in a comprehensive system of one traditional energy ETF, one clean energy ETF, seven oil-exporting country ETFs, and six oil-importing country ETFs. We find that shocks to the traditional (clean) energy market are the primary source of short-term (long-term) systemic risk, suggesting that oil-dependent countries have started to incorporate the long-term risks associated with clean energy into the pricing of related assets. Meanwhile, we document both homogeneity within and heterogeneity between oil exporters and oil importers in the transmission patterns of systemic risk. These findings can help provide customized trading strategies for investors with diverse profiles. Additionally, we compare the regime-dependent hedging strategy with both the regime-dependent diversification strategy and the dynamic hedging strategy, demonstrating that it is the most effective for investors aiming to minimize portfolio volatility. Collectively, our results provide valuable insights that can assist policymakers, portfolio managers, and investors in adapting to the evolving dynamics of the energy transition.

Exchange rate, external reserves and current account balance nexus in oil-dependent countries: A Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) approach

The international monetary authorities have been consistently advising oil-dependent countries to change their exchange rate policy from a fixed to a floating exchange rate regime. While some of these countries including Nigeria have announced their adoption of a free-floating exchange rate system, evidence shows that the majority are suffering from “fear of floating”, hence operating an abridged exchange rate system. This study employs the Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) model to use the causality approach to determine the exchange rate system that best explains the de facto exchange rate policy system operating in these countries. This is explained by the dynamic causality between exchange rates and foreign reserves. The dynamic causality between the exchange rate and current account balance also explains the potential effect of devaluation to improve the external trade balance, which implies the J-curve and Marshall Lerner condition. The results show that there is no significant causality from foreign reserves and trade balance to the exchange rate, suggesting that oil-dependent countries are more aligned to a fixed exchange rate regime than a floating exchange rate regime. We also find significant negative causality from the exchange rate to foreign reserves, while foreign reserves have a positive causal effect on the current account balance. This implies that the expected devaluation gains that may be prompting oil-dependent countries to stick to fixed exchange rate regimes are not there, as currency devaluation tends to worsen trade performance and foreign reserves rather than improve them. While oil-dependent countries are not benefiting much from a fixed exchange rate system, it is recommended that appropriate policy to boost private sector generation of foreign exchange should be put in place before the adoption of a full-fledged floating exchange rate system.

Assessing the vulnerability of oil-dependent countries in Europe

In this article, we attempt to assess the vulnerability of European oil-dependent countries, using the Weighted Russell Directional Distance Model, which provides a composite index and allows for the analysis of adjustments in different proportions for the evaluation factors to reduce oil vulnerability. Our empirical findings show heterogeneous degrees of vulnerability to oil across countries due to country-specific characteristics. More precisely, Slovakia, the Czech Republic, Sweden, France, the Netherlands, and Spain emerged as the least oil-vulnerable countries. Conversely, Hungary, Poland, and Portugal performed poorly regarding oil supply security. Our productivity analysis indicates that inefficient countries that experienced productivity gains primarily achieved them through technological progress, with the Shannon-Wiener index playing a crucial role. These findings align with the EU's strategy of diversifying supply sources.

The Environmental Curse in Oil Dependence Countries: A Missing Dimension of the Oil Curse

Objective: We build on prior studies by perhaps shedding light on the murky relationship in Oil-dependent countries. The study aims to expand the concept of the contractual oil curse and suggests another channel that may not be addressed as one of the oil curse channels. Accordingly, there remains little understanding of the oil curse by which the environmental dimension brings a new manifestation. Methods: In this study a sample of 21 oil-dependent economies were analysed from 1995-2018, using the Pooled Mean Group (PMG) and a dynamic panel technique that is heterogeneous. Results: The results empirically prove the negative influence of the connection between CO2 emissions and oil consumption. As a result, we identified a symptomatology of the oil curse via a new transmission method under the environmental domain. Depending on the transmission method, natural resources can either be a benefit or a curse. Our study found evidence supporting the concept of the oil curse taking place through the environmental channel (CO2 emissions). Conclusion: Hence, the presence of this negative relationship has a new purpose in the debate about the oil curse and its environmental impact. Policy research needs to be conducted to understand and mitigate the oil curse.

Crude oil futures prices and foreign exchange markets

ABSTRACTWe apply a time-varying parameter VAR (TVP-VAR) extended joint connectedness approach, in addition to the generalized connectedness approach, to understand the connectedness of crude oil futures price and exchange rates of major oil-dependent countries. We find time-varying nature of pair-wise and total connectedness that are usually elevated during events such as COVID-19, Brexit, European sovereign debt crisis and global financial crisis. Both joint and generalized connectedness approaches confirm that Japanese Yen and Russian Ruble are the leading net receiver of the shocks, though the two approaches provide mixed results for some other currencies. Moreover, there is strong evidence of time-varying and bi-directional shock transmissions between oil and foreign exchange markets. We also show that oil price volatility and gold price have predictive power on the connectedness. Lastly, we analyse the policy and portfolio implications.

Avoiding the Political Resource Curse: Evidence from a Most-Likely Case

Why do some countries escape the political resource curse while others do not? Most scholars argue that avoiding the claimed anti-democratic effects of natural resources, especially oil, largely depends on the quality of pre-existing political institutions and/or the effectiveness of contemporary resource management institutions. Drawing on the most-likely case of Timor-Leste, one of the world’s most oil-dependent countries that nevertheless successfully consolidated democracy, we challenge these dominant theories and highlight new important factors to consider. We show that Timor-Leste did not avoid the curse because of good pre-existing political institutions, good natural resource governance institutions, or an otherwise favorable environment for democracy. Instead, we find that the ideological beliefs of major political actors, their strong popular legitimacy, the absence of a hegemonic actor among them, as well as the approaches of external actors, have produced a consolidated democracy despite strong incentives for the development of authoritarianism. These findings highlight the importance of ideology and agency, of the composition of independence movements, and of constructive international engagement, in particular at critical historical junctures. In short, even countries facing serious political and economic challenges can avoid the political resource curse, and both scholars and policymakers should consider a broader approach to the phenomenon.

Government healthcare financing and dwindling oil prices: Any alternatives for OPEC countries?

Crude oil is one of the sources by which budgets are financed in OPEC countries. However, the fall in oil prices in 2014 put their governments’ finances under significant pressure. Healthcare was one of the sectors experiencing fiscal strain. This study examined the effect of a fall in oil prices on healthcare financing in eight OPEC countries and whether such financing has shifted away from the dependence on oil. Quantitative healthcare expenditure data from the WHO covering the period from 2003 to 2019 were evaluated using a comparison of means Welch’s t-test. The result showed that government healthcare expenditure in Iran, Venezuela, and Kuwait increased in the period post-2014 compared to the expenditure after 2008 and 2002, suggesting that these countries succeeded in shielding such spending against the fall in oil prices. By contrast, the United Arab Emirates, Saudi Arabia, Iraq, Nigeria, and Algeria did not, highlighting that they have not yet moved from dependence on oil. With the economic uncertainty caused by oil fluctuations, global political and economic developments, and the world transitioning to green energy, oil-dependent countries should free their governments’ healthcare expenditure from dependence on such sources of funding. Furthermore, they should not focus on temporary plans by shifting the burden to private spending at a time of falling oil prices, but to utilize different financing approaches.

The impact of negative oil shocks on military spending and democracy in the oil states of the greater Middle East: Implications for the oil sanctions

This study examines how negative oil shocks affect military expenditures and the quality of democracy in the oil rentier states of the greater Middle East using annual data from 1990 to 2018, inclusive. The theoretical analysis suggests that a reduction in oil revenues decreases the government spending on patronages and public goods and may challenge the political power of the incumbent leader. The results of the impulse response functions based on the estimated panel vector autoregressive models indicate that the responses of the military burden and non-military expenditures (as a percentage of GDP) to negative oil shocks become negative and statistically significant after three to four years. Reductions in the financial capability of a rentier government and spending on patronages improve the political environment and quality of democracy. However, this political improvement takes some time to develop as the government may resist the reduction in its expenditures during the initial phase of oil shocks. The policy implication of these results is informative for organizations and policymakers interested in the security and political impact of oil sanctions. Restrictions on oil exports decrease the military spending of the oil rentier states and improve their democracy indices in the long run, although the short-run impacts can be negative. These results are not sensitive to different proxies for oil abundance, alternative data on military expenditures, different indicators of democracy, and different groups of oil-dependent countries.

The Root of Hyperinflation in Venezuela: Statism, Chavismo, and Dictatorship

Venezuela, endowed with abundant oil resources, was one of the wealthiest countries in Latin America, with a promising future. However, Venezuela’s economic condition has dramatically deteriorated in recent years, with the country experiencing hyperinflation and a major recession in 2016. The popular view is that Venezuela suffers from the “Dutch disease,” in which a government develops an unsustainable reliance on natural resource exports at the expense of other sectors, making the economies increasingly susceptible to volatile global oil prices and capital flights. This study compares economic data from oil-dependent countries around the world and reveals that the “Dutch disease” theory can only explain Venezuela’s economic downturn, not its deep recession and hyperinflation. This essay then delves into three sociopolitical causes of Venezuela’s poverty crisis: aggressive Chavismo statist policies that overextended the Venezuelan economy and made it vulnerable to international oil prices, a strong presence of illegal market sectors that disrupted market equilibrium, and Venezuela’s personal dictatorship under the Chávez-Maduro administration. Despite the preceding three sociopolitical factors contributing to Venezuela’s hyperinflation, the country’s economic outlook is positive owing to a vacancy in the global oil market as a result of the 2022 Ukrainian summer counteroffensive. This paper proposes that the key to successfully resolving the crisis is promoting private investment and tackling the resource curse, both of which require a robust democracy with an independent press and judiciary. Venezuela may seek international assistance to implement political reforms, abolish foreign exchange restrictions, and move toward economic liberalization.

The energy transition and export diversification in oil-dependent countries: The role of structural factors

The energy transition toward decarbonization is expected to impact producers of fossil fuels. However, oil-exporting countries are currently key players in the modern economy. Thus, the energy transition will not be successful if state revenues in these countries are not stably maintained. These countries can protect themselves against revenue volatility and mitigate carbon risk by diversifying their economies. However, export diversification appears to be particularly challenging for many oil-producing countries. It is natural to ask why some oil-exporting countries have managed to diversify their economies whereas others have not. We hypothesize that the differences in oil producers' diversification patterns may be associated with differences in their structural characteristics. Such differences may cause countries' diversification trends to diverge. To investigate this hypothesis, we examine whether all countries converge toward the same diversification level. We also check whether their diversification efforts diverge overall but create separate convergence clubs. The results show that structural and institutional factors play a central role in the diversification process. In particular, countries with higher quality infrastructure, human capital and research and development efforts are more likely to converge toward high diversification. Thus, these factors provide greater economic stability in turbulent times and promote a successful energy transition.

Evaluating the performance of ensemble classifiers in stock returns prediction using effective features

Stock market prediction is considered as an important yet challenging aspect of financial analysis. The difficulty of forecasting arises from volatile and non-linear nature of stock market, which is affected by varied uncertain factors, ranging from financial ratios to macroeconomic indicators. Recent advances in machine learning, particularly ensembles, have made it possible for academic researchers and financial practitioners to forecast the stock market more efficiently. The novelty of this work is to evaluate how stock return in an oil-dependent country (i.e., Iran), which has been facing stagflation for a long time due to economic and political issues, is affected by fundamental and macroeconomic indicators. Our main objectives are to (1) find the most important fundamental and macroeconomic indicators that control the stock returns of companies listed on the Tehran Stock Exchange (TSE); (2) compare the performance of newly developed bagging- and boosting-based ensembles in predicting annual real stock returns of the TSE; and (3) develop multiclass classification models to forecast stock returns. Prior studies mainly focused on developing binary classification models, which simply predict whether stock returns will be positive or negative in the future. We, however, design multiclass classification models to provide more information for the investors and reduce the uncertainties associated with the prediction. To this end, we first provide a comprehensive list of 57 potential features affecting the stock returns. Next, the data are carefully preprocessed and fed to 14 different bagging- and boosting-based ensembles (e.g., Random Forest, LightGBM, XGBoost, Extra-Trees, AdaBoost, CatBoost) to predict the stock returns. The performance of ensembles is evaluated through different measures (e.g., accuracy, F-score, G-mean). We then propose a novel feature selection method to identify the most contributing features to the stock returns. Our proposed model identifies nearly 65% of 57 original features as redundancy, resulting in 20 most significant features. The selected features are fed to the mentioned ensembles to re-predict the stock returns. Finally, the performance of stock returns forecasts with and without selected features is compared. To design the ensembles, we employ the data from listed companies on the TSE for a 15-year period, spanning between 2005 and 2020. Results suggest that boosting ensembles, in general, outperform bagging-based methods. Among the boosting ensembles, XGBoost and AdaBoost provide the best and worst predictive performance, respectively. Among the bagging-like ensembles, Rotation Forest is the most accurate one, whereas Random Patches performs the worst. Further, our proposed feature selection approach effectively identifies the most representative features for stock returns prediction and can be used as a reliable framework for future investment decisions.

Doing Business in the COMESA Region: The Role of Innovation and Trade Facilitation

Abstract Developing oil-dependent countries, like Oman, have growing potentials to broaden their export base aside from the hydrocarbon sector, thus enhancing economic growth. The article aims to identify factors to enhance Oman non-oil exports to the COMESA countries with a focus on innovations and trade facilitation. At the macro level, the article uses country trade data to explore the determinants of trade. At the firm level, the focus is on firm export behavior and innovation. Results show the key role of trade facilitation and firm-level innovations in particular at the commodity level. Innovation is significant and positive for commodities like vegetables, plastic, hides, stone, glass, and machinery. Government’s policies to boost exports and enhance economic growth should be geared to reducing market risks facing exporting firms as well as rewarding innovative companies through better innovation-targeted policies.

Export diversification, energy consumption, economic growth and environmental degradation: Evidence from Oman

Export diversification's role in reducing environmental degradation, especially in oil-dependent countries, has been overlooked. This study investigated the effect of export diversification, along with energy consumption and economic growth as important control variables, on CO2 emissions and ecological footprint in Oman from 1984 to 2014 by employing the Autoregressive Distributed Lag (ARDL) model. To ensure the stability of the model, robust long-run relationships estimators including Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) were used. The results suggest that export diversification has a positive impact on Oman's environmental degradation. A positive effect of energy on both environmental indicators was found, with a lower effect on CO2 emissions. Diversification of exports is strongly recommended in Oman by shifting to more energy-efficient, environmentally friendly, and high-tech industries.

Oil Price Shock and Agricultural Productivity: Stylised Evidence in Nigeria

Oil sector is a dominant sector, as it is the largest exported commodity in Nigeria. However, evidences have shown that Nigeria as an oil dependent country faces frequent oil price fluctuations that have pose greater challenge on agriculture sector in Nigeria, hence affecting agricultural productivity. This necessitates the need to investigate the effect of oil price shocks on agricultural productivity in Nigeria. This study adopted the Hodrick Prescott data filtering approach to check for the fluctuation of oil price. The result revealed fluctuation in Nigeria oil price from 2018 up until recently. Also, the Structural Vector Autoregression and normalized equation was used to establish the long-run equation. Evidence from the long-run relationship showed that agricultural productivity has a negative relationship with oil price and real exchange rate. Consumer price index, and oil production has as positive relationship with agricultural productivity. Variation in oil price affects most of the variables. However, oil price shock shows more variations across the time for agricultural productivity. To this end, this study revealed that oil price shock has adverse effect on agricultural productivity in Nigeria. Hence, the need for the government to implement a policy and programmes that will serve as oil price shock absorber in order to sustain agricultural productivity.

Bank Financial Stability and International Oil Prices: Evidence from Listed Russian Public Banks

ABSTRACT Using data on 17 listed public banks from Russia over the period 2008 to 2016, we analyze whether international oil prices affect the bank stability in an oil-dependent country. We resort to a Pool Mean Group (PMG) estimator, and we show that an increase in oil prices has a long-run positive effect on Russian public banks stability. While positive oil-price shocks contribute to bank stability in the long run, an opposite effect is recorded for negative shocks. However, no significant impact is documented in the short run. Our findings are robust to different bank stability specifications and different samples.

Foreign Policy in Times of Crisis: Venezuela's Blockade Policy towards Brazilian Aids

Venezuela, an economically oil-dependent country in South America, has experienced a turmoil of economic crisis since 2014 under the administration of President Nicolás Maduro. This crisis has been spilling towards social and political issues, with one being the emergence of an opposition group led by Juan Guaidó. This crisis, at first, has invited sympathy from various international actors, both states and non-states, with one being Brazil under the leadership of President Bolsonaro. Brazil at first is actively sending logistical aids towards the Venezuelans. However, in February 2019, President Maduro decided to fully-blockade Venezuela-Brazil borders for any human or goods movement. Beside the individual factor of the state's leader, group factor, specifically its cabinet which still acquires legitimacy from the leader, is also often seen as affecting and advising a policy in the time of a crisis. This paper aims to analyze the presence of President Maduro’s cabinet towards the Brazil border blockade in Venezuelan Crisis in 2019. By using the groupthink paradigm, this paper argues that there is a position of convergence between the members of the cabinet with the background of: (1) the dominance of nationalist military groups loyal to President Maduro; (2) the same ideology of left-wing political spectrum. It also argues that beside the two internal factors above, the external factors of regional and global tension towards Venezuela also create an isolation as an element of stress towards this government. This paper concludes that the combination of the three factors above become the main factors that formulated the blockade policy. Keywords: economic crisis, foreign policy, groupthink, Venezuela

The Impact of Oil Price Shocks on Oil-Dependent Countries’ Currencies: The Case of Azerbaijan and Kazakhstan

The paper aims to assess the relationship between Azerbaijani and Kazakhstani exchange rates and crude oil prices volatility. The study applies the structural vector autoregressive (SVAR) model. The paper concentrates on Azerbaijan and Kazakhstan, the post-Soviet countries considered as some of the most oil-dependent countries in the Caspian Sea region. The impulse response functions suggest that the rise of crude oil prices is associated with the exchange rates decrease and thus with an Azerbaijani manat and Kazakhstani tenge appreciation against the U.S. dollar. Moreover, the results suggest that an oil price increase leads to the rise of Azerbaijani international reserves. However, the results are insignificant for the Kazakhstani foreign exchange reserves. Additionally, the study reveals a negative and significant relationship between crude oil prices and USD/KZT in both pre-crisis and the COVID-19 crisis periods. We reveal that the correlation has been stronger during the COVID-19 pandemic. However, the relationship is not significant in the case of the Azerbaijani manat. The USD/AZN exchange rate has been stable since 2017, and the first phase of the COVID-19 pandemic has not caused a change in the exchange rate and a weakening of the Azerbaijani currency, despite significant drops in crude oil prices.