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The Role of Institutions in the Dynamic Effects of Oil Revenues in Oil Economies

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  • Shadrokh , Mahdie

    (Faculty of Management and Economic,Tarbiat Modaress University)

  • Zamanzadeh , Hamid

    (Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran)

Abstract

The purpose of this paper is to investigate the system of oil revenues effects on the production performance of oil-rich countries in both short and long-run. To reveal new insight, a macroeconomic model is designed to hypothesize long-run structural relations in the economies of the oil-rich countries including three long-run relationships of real output, real money balance, and the adjusted purchasing power parity and short-run dynamics of variables within the framework of a Vector Error Correction Model. The model is estimated based on the annual data of 33 oil-rich countries during the period of 1992 to 2016. The existence of three long-run relationships in the economies of oil-rich countries is confirmed. Based on the estimated model, the net effect of oil revenues changes on production is directly related to the institutional quality index. In countries with the institutional quality lower than the threshold, the net effect of increasing oil revenues on production in the long-run is negative, and in contrast, in countries with higher institutional quality, this effect is positive and will be strengthened by increasing institutional quality. The institutional quality threshold is estimated to be 0.23.

Suggested Citation

  • Shadrokh , Mahdie & Zamanzadeh , Hamid, 2017. "The Role of Institutions in the Dynamic Effects of Oil Revenues in Oil Economies," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(1), pages 23-36, January.
    • Handle: RePEc:mbr:jmonec:v:12:y:2017:i:1:p:23-36
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    Cited by:

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    More about this item

    Keywords

    Oil Revenue; Institutional Quality; Oil Producing Countries; Production; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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