TITLE:
Oil Revenue Shocks and the Growth of the Non-Oil Sector in an Oil-Dependent Economy: The Case of Oman
AUTHORS:
Ibtisam Al-Abri, Gülcan Önel, Kelly A. Grogan
KEYWORDS:
Oil Curse, Economic Growth, Government Spending, Private Non-Oil Sector, Oman
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.4,
April
12,
2019
ABSTRACT: There is no consensus among economists on whether
natural resource abundance is a curse or a blessing for countries heavily
endowed with such resources. Oman is a small oil-exporting country that heavily
relies on oil revenues. Recent adverse shocks to oil prices have left Oman’s
economy more vulnerable relative to other countries relying on oil for their
main source of income. One reason for this outcome may be that Oman’s private
non-oil sector heavily depends on government spending and projects, which
typically decelerate after negative oil shocks. Using a cointegrating Vector
Autoregressive Regression (VAR) model and
quarterly data covering the period 2000 to 2015, we evaluate the “oil-curse”
phenomenon for Oman by exploring long-run and short-run relationships
among economic growth sourced from non-oil producing sectors, oil revenues, and
government expenditures. We also use causality tests and impulse responses to
measure the extent of short-run and long-run macroeconomic implications of
negative oil shocks for Oman. Results suggest that a sound fiscal policy that
allows for true sectoral diversification of income is crucial to avoid an oil
curse in Oman.