Oil shocks and oil producers' growth: where did all the spending go?

Amany A. El Anshasy

OPEC Energy Review, 2014, vol. 38, issue 3, 243-271

Abstract: I use panel unit root tests and panel error correction models to examine the effects of oil windfall shocks and types of public spending on economic performance in 16 oil-producing countries over the period 1972–2008. Higher oil prices seem to reduce non-oil growth in the long run, but stimulate it in the short run. However, oil abundance may or may not become a ‘curse’ conditional on how the windfalls are managed. I find that the large windfalls of the 1970s and the 2000s have contributed to the slow long-run growth performance, after controlling for the composition of public spending. Public sector wages stimulated long-run non-oil growth in more oil-abundant economies; but had a negative effect in less oil-endowed countries. The large public investment programs were not effective in stimulating non-oil long-run growth; and the higher the dependency on oil, the lesser the contribution of new infrastructure investments to the non-oil sector's growth.

Date: 2014
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