Oil Prices Shocks and Government Expenditure (original) (raw)
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Macroeconomic effects of oil price shocks on the major oil-exporting countries
Ahmad Hassan, 2022
Crude oil remains the primary source of energy, accounting for almost a third of global energy production. The international oil price is highly volatile and carries serious consequences for the oil-exporting economies. The exports, foreign reserves, and government revenue are impacted by the crude oil price shocks. The falling oil prices trigger an imbalance in trade, and balance of payments and widens the fiscal deficit. This paper examined the impact of oil price fluctuation in twenty-nine major oil exporting economies using the structural auto-vector regression model (SVAR) for the period from 1991 –2020. For empirical analysis annual data for the exports (EXP), foreign exchange reserves (RES), nominal effective exchange rate (EXC), fiscal balance (FisBal), and GDP growth (GDPg) are used in this research. The empirical findings show the vulnerability of developing economies to past oil price slumps. The Middle Eastern, Latin American, and African economies are the most oil-reliant. Economic growth in transitional economies is contributed by the oil sector. The fiscal structure of the government is built around the oil economy in developing oil-exporting countries. Thus, these countries should attempt the diversification of their fiscal structure for revenue and encourage alternate non-oil exports.
Oil Price Volatility and the Fiscal Response in Oil-Exporting Countries
2009
In many oil-exporting countries, oil revenues are the main funding source for government spending. Variations in oil prices thus have a potentially large role in determining fiscal policy. We develop a dynamic general equilibrium model of an oil-exporting economy in which a social planner sets the optimal time path of government spending. We use the model to derive a fiscal policy reaction function that links the rate of growth in government expenditure to not only oil price shocks but also their volatility and skewness. We then estimate the fiscal reaction function using a panel-data model for 15 oil-exporting countries. We find that oil price changes have a direct and material impact on government spending growth. In addition, higher oil price volatility can induce government prudence, reducing the growth rate in government spending, especially in inflationary periods. There is no evidence that the positive skewness of the distribution of oil price shocks is important in setting fiscal policy. Finally, we find evidence in support of the "favorable fiscal conditions" hypothesis in which government spending grows more rapidly in years following budget surpluses.
According to the vast and enriched oil resources of Iran and the inter relationship between this nominated resource and the other macro-economic variables, in this paper we try to investigate the clear effects of the OPEC basket and Brent crude oil prices, as two of the most important global prices on the GDP of Iran. Further, the purpose of the research will be testing and comparing the response of the Iran’s GDP against the global oil prices shocks. So the best methods will be Vector Autoregressive (VAR), Impulse Response Function (IRF) and the Variance Decomposition which will be run among the quarterly time series data of the related variables from 1995:Q1 to 2010:Q4. The achieved results show the low – positive effects of global oil prices shocks on the GDP. Moreover, the result from variance decompositions illustrates that the effects of OPEC basket crude oil price on the GDP is higher than Brent one in the short run and vice versa, the Brent has higher affect rather than OPEC in the long run. So the effects of the global oil prices shocks on the GDP of Iran are various in times.
International Journal of Management, Accounting and Economics , 2022
In a world scale economy considering interlinkage and interactions between countries, economic shocks will affect various economies through channels. Meantime, the oil price is one of the most important channels. New studies show that the connection between the oil price and the world economy has numerous complications which could not be incorporated in traditional frames with only taking into consideration separated and identified oil supply and demand shocks without considering synchronicity and the source of the main shocks. Therefore it is essential to model a multi-dimensional system. The purpose of this study is to investigate the impact of oil price shocks on the major macroeconomic variables of oil-exporting countries from 1974Q1 to 2019Q4 using the global vector autoregressive (GVAR) approach. The macroeconomic variables include four domestic variables, three foreign variables and one global variable. In particular, it provides a theoretical framework for the global oil market to illustrate how multi-country approach to modeling oil markets can be used to identify country-specific oil price shocks. On the empirical side, it shows the global economic implications of oil price shocks vary considerably depending on which country is subject to the shock. The results of this study indicate that the economic consequences of a positive oil price shock are different on macroeconomic variables in oil-exporting countries in short-run and long-run. However, in response to a positive oil price shock, most of OPEC countries experience long-run inflationary pressures.
Asymmetric impacts of oil price shocks on government expenditures: Evidence from Saudi Arabia
Cogent Economics & Finance, 2018
This paper investigates the effect of oil price shocks on government expenditures on the health and education sectors in Saudi Arabia. Using a quarterly dataset 1990Q1-2017Q2 and employing a non-linear autoregressive distributed lag (NARDL) model, our research shows evidence of a non-linear relationship between oil prices and government expenditures in Saudi Arabia, where a negative oil price shock would have a statistically significant different impact in the long run compared to a positive shock. We build upon our empirical findings and draw some policy recommendations for Vision 2030 of Saudi Arabia.
2016
There is well established literature on the negative relationship between oil price shocks and aggregate macroeconomic activities for developed economies. However, there is a paucity of similar empirical studies in developing countries. In this respect, Sudan is a prominent example. This paper attempts to address this gap by employing the vector auto-regression model to explore the impact of oil price shocks on the main variables of the Sudan's government budget using quarterly data for the period 2000:q1-2011:q2. The empirical results suggest that oil price decreases significantly influences oil revenues, current expenditure and budget deficit. However, oil price increases do not Granger cause budget variables. Results from the impulse response functions and forecast error variance decomposition analysis suggest that oil price shocks have asymmetric effect on government budget.
Impact of Oil Price Shocks on Sudan’s Government Budget
International Journal of Energy Economics and Policy, 2016
There is well established literature on the negative relationship between oil price shocks and aggregate macroeconomic activities for developed economies. However, there is a paucity of similar empirical studies in developing countries. In this respect, Sudan is a prominent example. This paper attempts to address this gap by employing the vector auto-regression model to explore the impact of oil price shocks on the main variables of the Sudan’s government budget using quarterly data for the period 2000:q1-2011:q2. The empirical results suggest that oil price decreases significantly influences oil revenues, current expenditure and budget deficit. However, oil price increases do not Granger cause budget variables. Results from the impulse response functions and forecast error variance decomposition analysis suggest that oil price shocks have asymmetric effect on government budget
OPEC Energy Review, 2014
The present study was aimed to investigate the effects of oil price shocks on discretionary fiscal policies in selected OPEC countries during 1980-2015. In this regard, the heterogeneous dynamic reaction to structural shock was examined using Panel Structural Vector Autoregressive (PSVAR) technique. Based on the findings, the effect of oil price shocks on discretionary fiscal policy was positive in short-run but ineffective in long-run. In addition, the oil price shocks caused an increase in inflation and government expenditure and a decrease in the economic growth in selected OPEC countries according to the Resource Curse phenomenon. Moreover, as variance decomposition showed, the government expenditure and economic growth have the most effect on discretionary policy changes. The effect of discretionary fiscal policy on economic growth in selected OPEC countries was negative, contrary to the Keynesian theory and the results of some other studies. Because discretionary fiscal policies play a major role in decisions of the countries mentioned above, the results also showed that a limitation in the government authority in OPEC countries would come into conflict with the decrease in economic growth and production fluctuation.
2007
The study investigates the relationship between changes in crude oil prices and Malaysia and the UK macro-economy. A multivariate VAR analysis is carried out among five key macroeconomic variables: real gross domestic product, short term interest rate, real effective exchange rates, long term interest rate and money supply. From the VAR model, the impulse response functions reveal that oil price movements cause significant reduction in aggregate output and increase real exchange rate. The variance decomposition shows that crude oil prices significantly contribute to the variability of real exchange rate long term interest rate in the Malaysia economy while oil price shocks are found to have significant effects on money supply and short term interest rate in the UK economy. Despite these macroeconometric results, caution must be exercised in formulating energy policies since future effects of upcoming oil shocks will not be the same as what happened in the past. Explorations and development of practicable alternatives to imported fuel energy will cushion the economy from the repercussions of oil shocks.
Macroeconomic Impact of Oil Price Shocks on Government Expenditure and Economic Growth in Nigeria
SDMIMD Journal of Management, 2022
The Nigerian economy depends on over 90% oil exports revenue to drive government expenditure aimed at supporting growth-enhancing fiscal investments. Oil price has therefore become the standard benchmark for estimating aggregate annual revenue projections for all fiscal budgets and overall prospects of budgetary success. Over the years, growth in oil exports revenue and associated growth in government expenditure supported by macroeconomic policy reforms have failed to diversify the economy away from its mono-cultural revenue base. This paper investigated the nexus between oil price shocks, government expenditure and economic growth in Nigeria for the period 1986 to 2018, an era marked by bold market reforms. Generalized Methods of Moments (GMM) and Vector Error Correction (VECM) techniques are used for the empirical examination of the relationship between the study variables. The results indicate a direct and significant relationship between oil price and both government expenditur...