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The balance between fiscal consolidation and non-oil growth: The case of the UAE

Author

Listed:
  • Assil EL. Mahmah
  • Magda Elsayed Kandil

Abstract

This research paper attempts to address the impact of oil price shocks on fiscal consolidation by taking into account numerous channels through which macroeconomic drivers can affect economic growth for the UAE economy. A small-scale macroeconomic model comprising of six econometric equations has been estimated using the OLS method over the period 1980–2015. The results show that the oil price fluctuation has a significant impact on banks' liquidity, domestic credit and foreign direct investment, but a negligible effect on non-oil GDP growth, assuming that the government keeps the same level of spending, i.e., no fiscal consolidation pro-cyclical stance with the decline in oil price. However, the budget deficit and the need for financing would grow significantly. Moreover, using different scenarios for the pace of fiscal consolidation going forward, the model suggests that government expenditure is quite effective in raising aggregate demand and supporting non-oil real growth, in line with the UAE's vision 2021.

Suggested Citation

  • Assil EL. Mahmah & Magda Elsayed Kandil, 2019. "The balance between fiscal consolidation and non-oil growth: The case of the UAE," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 19(1), pages 77-93, March.
    • Handle: RePEc:bor:bistre:v:19:y:2019:i:1:p:77-93
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    File URL: https://www.sciencedirect.com/science/article/pii/S2214845017301552
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    Citations

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    Cited by:

    1. Abubakar, Attahir Babaji & Muhammad, Mansur & Mensah, Samuel, 2023. "Response of fiscal efforts to oil price dynamics," Resources Policy, Elsevier, vol. 81(C).
    2. Abdalla Alfaki, Ibrahim M. & El Anshasy, Amany A., 2022. "Oil rents, diversification and growth: Is there asymmetric dependence? A copula-based inquiry," Resources Policy, Elsevier, vol. 75(C).
    3. Sohag, Kazi & Kalina, Irina & Samargandi, Nahla, 2024. "Oil market cyclical shocks and fiscal stance in OPEC+," Energy, Elsevier, vol. 296(C).
    4. Ahmad Al Humssi & Maria Petrovskaya & Milana Abueva, 2022. "Modelling the Impact of World Oil Prices and the Mining and Quarrying Sector on the United Arab Emirates’ GDP," Mathematics, MDPI, vol. 11(1), pages 1-22, December.
    5. John W Lang & N. Aldori, 2020. "An Extension to Late Rentierism, using a Comparative Compound Diversification Index, to Show the Movement Towards Mixed Mode Economic Diversification and Development, in the GCC States," Business and Management Studies, Redfame publishing, vol. 6(1), pages 4057-4057, December.

    More about this item

    Keywords

    Fiscal consolidation; Economic growth; Oil price effects; United Arab Emirates vision 2021;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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