Resource Price, Macroeconomic Distortions, and Public Outlay: Evidence from Oil-Exporting Countries

ABSTRACT

This study examines the repercussions of oil price and macroeconomic distortions on government expenditure in 15 oil-exporting countries. Adapting the Pooled Mean Group analytical approach, the long-run findings are indicative of a blend of the Dutch disease and rent-seeking hypothesis of the resource curse theory in oil-exporting countries. These effects crucially impact on the poor growth of the real sector in these countries, needed for diversification of their revenue base. Furthermore, both resource curses account for one of the reasons why fiscal deficits in oil-exporting countries have been on the rise. The country short-run coefficient for the balance of payment, economic growth, and exchange rate also supports the Dutch disease and rent-seeking hypothesis mix found in the long run. Also, the significant negative impact of oil rents in most countries shows that oil-exporting countries have been making attempts at diversifying their income sources; this is because proceeds from oil cannot be relied upon to adequately finance growing government expenditure, due to the volatile nature of oil prices, thus suggesting also that the volatility hypothesis is valid for most oil-exporting countries in the short run.

KEYWORDS:

• Government expenditure
• oil price
• revenue
• resource curse

JEL CLASSIFICATIONS:

• E61
• H27
• H50
• Q31
• Q32

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 According to the International Monetary Fund report (WEO), Inflation in Venezuela rose from 121.7% in 2015 to 475.8% as at December 2016, while the National Bureau of Statistics (NBS) reports increase in inflation from 9.6% in 2015 to 18.7% for Nigeria by December 2016.

2 The OPEC is a permanent, intergovernmental organization, created at the Baghdad Conference on 10–4 September 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The five founding members were later joined by nine other members: Qatar (1961); Indonesia (1962) – suspended its membership in January 2009, reactivated it in January 2016, but decided to suspend it again in November 2016; Libya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership in December 1992, but reactivated it in October 2007; Angola (2007); and Gabon (1975) – terminated its membership in January 1995 but rejoined in July 2016 (OPEC, 2016).

3 OECD mean Organization for Economic Co-operation and Development.

4 Such fiscal and financial buffers can be employed to smooth the effect of declining oil prices in the short term.

5 Most oil proceeds are being shared by the Central governments and States or Regions. Booms in oil revenues are also saved in anticipation of a future falling price, and most governments engage in subsidy ventures which tend to raise public spending. The political mistrust between various tiers of government does force the exhaustion of saved oil proceeds, also stimulating public spending to rise.

6 When there is a rise in the international price of oil, governments of most oil-exporting countries especially in developing nations embark on subsidizing the price of refined oil products, and subsidizing agricultural product prices which may be imported to cushion the effect on the citizens.

Additional information

Notes on contributors

Samson Adeniyi Aladejare

Samson Adeniyi Aladejare is an Academic Staff in the Department of Economics, Federal University Wukari, Nigeria. His research interest includes Public Sector Economics, Applied Macroeconomics, and Energy Economics.