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Oil Prices, External Income, and Growth: Lessons from Jordan

Kamiar Mohaddes () and Mehdi Raissi

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper extends the long-run growth model of Esfahani et al. (2009) to a labour exporting country that receives large inflows of external income - the sum of remittances, FDI and general government transfers - from major oil exporting economies. The theoretical model predicts real oil prices to be one of the main long-run drivers of real output. Using quarterly data between 1979 and 2009 on core macroeconomic variables for Jordan and a number of key foreign variables, we identify two long-run relationships: an output equation as predicted by theory and an equation linking foreign and domestic inflation rates. It is shown that real output in the long run is shaped by (i) oil prices through their impact on external income and in turn on capital accumulation, and (ii) technological transfers through foreign output. The empirical analysis of the paper confirms the hypothesis that a large share of Jordan's output volatility can be associated with fluctuations in net income received from abroad. External factors, however, cannot be relied upon to provide similar growth stimuli in the future, and therefore it will be important to diversify the sources of growth in order to achieve a high and sustained level of income.

Keywords: Growth models; long-run relations; Jordanian economy; remittances; FDI; oil price shocks; foreign output and in?ation shocks; and error correcting relations. (search for similar items in EconPapers)
JEL-codes: C32 C53 E17 F43 F47 Q32 (search for similar items in EconPapers)
Date: 2011-12-15
New Economics Papers: this item is included in nep-ene
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Related works:
Journal Article: Oil Prices, External Income, and Growth: Lessons from Jordan (2013) Downloads
Working Paper: Oil Prices, External Income, and Growth: Lessons from Jordan (2012) Downloads
Working Paper: Oil Prices, External Income, and Growth: Lessons From Jordan (2011) Downloads
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