Asymmetric effects of oil price shocks in oil‐exporting countries: the role of institutions

Abstract

Many empirical studies on the oil price shock effects on the economies of oil-exporting countries have assumed a linear relationship between the shocks and macroeconomic variables, offering no insights on the dynamics of different types of shocks. The literature also assumes a homogeneous response to oil price shocks by oil-exporting countries. This paper investigates the non-linear effects of oil price shock on macroeconomic performance in the context of two groups of oil-exporting countries using a VAR model with price shocks estimated by a GARCH method. The model consists of oil price shocks and economic growth as two major variables of interest as well as intermediate variables such as investment, exchange rate, and inflation rate. The sample includes nine major oilexporting countries, six developing and three developed countries, for the period 1970-2010. The results indicate that not all oil-exporting countries are alike in responding to oil shocks. While oil shocks have asymmetric effects in oil-exporting developing countries; lower oil prices lead to major revenue cuts and ensuing stagnation in the economy, but higher oil prices and accompanying higher revenues do not translate into sustained economic growth; they do not have significant effect on economic growth in oil-exporting developed countries. The panel data estimation results also suggest that heterogeneous responses to oil price shocks in oil-exporting countries can be explained by differences in their institutional quality, particularly government effectiveness.

Asymmetric effects of oil revenue shocks on government spending composition and productive sectors: new evidence from Nigeria

“…The result of this study is in line with previous study done by Mordi and Adebiyi () for Nigeria that negative oil price shocks have significant effects on Nigeria's economy than positive oil price shocks. In addition, the same result was obtained by Moshiri () for developing and developed oil‐exporting countries that negative oil price changes induce diversification of the economy away from oil to non‐oil sectors which promotes tradable sectors and capital accumulation. However, our result contrasts with Kilian and Vigfusson () who found the effects of positive oil price shocks to be stronger than negative oil price shocks for the US economy.…”

“…() and Kilian and Vigfusson () also for the United States. More recent studies on asymmetric oil price are Moshiri () done for nine oil‐exporting countries and Raza et al . () conducted for Mexico, Malaysia, Thailand, Chile, Indonesis, South Africa, Brazil, Russia, China and India.…”

Asymmetric effects of theWTIcrude oil price on unemployment rates: a comparative study of Canadian provinces and the United States

“…Cologni and Manera () argue that the asymmetric oil shock, when included as an exogenous variable, improves the ability to identify the distinct phases of a business cycle. Moshiri () uses oil revenue shock rather than the oil price shock and finds the evidence of asymmetry in oil exporting developing countries. Donayre and Wilmot () study the effects of oil price shocks on the Canadian GDP and price level and confirm the asymmetry.…”

Oil price and the development of financial intermediation in developing oil-exporting countries: Evidence from Nigeria

“…Giving that economic activities in these developing economies depend significantly on crude oil price (see Lescaroux & Mignon, 2008;Mehrara, 2008;Moshiri, 2015;Omojolaibi, 2014), an increase in crude oil price will provide the much-needed financial resources for economic activities in these economies (Moshiri, 2015;Omojolaibi, 2014). With crude oil price significantly influenced by several economic and political factors in the international oil market (Alkhathlan, 2013), rather than domestic economic activities and development (Samargandi, Fidrmuc, & Ghosh, 2014), and oil receipt forming a major part of revenue in these countries, movements in crude oil price will influence fiscal spending (Poghosyan & Hesse, 2009), which in turn determines the level of economic activities and the demand for financial intermediary services.…”