Modeling long-term impacts of the COVID-19 pandemic and oil price declines on Gulf oil economies

Manal Shehabi

Economic Modelling, 2022, vol. 112, issue C

Abstract: The COVID-19 pandemic has been detrimental on hydrocarbon-overdependent Gulf states. The effects of the unprecedented oil price declines and substantial COVID-relief packages on Gulf economies are critical, as they can become enduring and foundational if the energy transitions accelerate to meet the Paris Agreement targets. Thus, this study assesses the impacts of the pandemic on the long-term economic sustainability of Gulf economies, using illustrations from Kuwait using the economy-wide WAFRA Applied General Equilibrium (WAFRAGE) Model applied to Kuwait (WAFRAGE-KWT Model). The simulation results indicate that post-pandemic, the economic resiliency of these states has significantly waned, primarily because the pandemic hit during a state of weakened economic resilience following the 2014 oil price collapse and subsequent government response. Although COVID-relief packages appeared in the form of counter-cyclical fiscal policy, Gulf states are unable to realize this policy's full potential benefits. They are incapable of being truly counter-cyclical under their current economic structure and the consumption-based nature of the COVID-relief packages, which protect oligopolistic firms' profits and reduce production, non-oil exports, and economic efficiency. The eroded fiscal and economic resiliency also threatens Gulf states' ability to weather energy transitions. The implication of the findings is that long-term sustainability requires immediate phased implementation of economic and energy reforms.

Keywords: COVID; Fiscal policy; General equilibrium; Economic sustainability; Energy transition; Energy (search for similar items in EconPapers)
JEL-codes: C68 D43 D58 E62 E65 O53 P28 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999322000955
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:112:y:2022:i:c:s0264999322000955

DOI: 10.1016/j.econmod.2022.105849

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().