Non linear Relationship between Oil Revenue Dependency and Fiscal Instability in Selected Oil Exporter Countries: Threshold Panel Approach

Document Type : Original Article

Authors

1 Assistant Professor of Economics, Faculty of Economics, Kharazmi University

2 MA in Economics, Faculty of Economics, Kharazmi University

Abstract

The main purpose of the study is to analyze the effective factors on fiscal instability of oil-exporting countries at different levels of dependency on oil revenues based on the threshold panel approach. Due to the ineffectiveness of the overall balance-of-budget indicator in oil countries as the basis for analyzing the government's fiscal policy, in this study, "The ratio of Non- Oil budget deficit to Non- Oil GDP" is used to measure the financial instability indicator in 2006- 2015 period. The findings of the research, while confirming the existence of threshold effect (ratio of the oil revenues to total government revenues) in the model, show that with increasing government revenue due to cash seigniorage as well as rising inflation, financial instability increase. In addition, if the dependence on oil revenues is higher than the threshold level calculated (29%), the effect of dependency on oil revenue on the financial instability index is more than 3 times, when dependency on oil revenue will be lower than threshold level. The findings of this study confirm the necessity of planning and orientation in oil exporting countries in order to reduce the structural dependency of the state budget on oil revenues.

Keywords


- Afshari, Z., Shirinbakhsh, Sh. & Beheshti, M. (2011). Financial Perspectives in Iran. Journal of Economic Research (Iranian-Islamic Approach), 12(45), 54-27 (In Persian).
- Bajo-Rubio, O., Diaz-Roldan, C. & Esteve, V. (2014). Deficit sustainability, and monetary versus fiscal dominance: the case of Spain, 1850–2000. Journal of Policy Modeling, 36(5), 924-937.
- Barnett, M. S. & Ossowski, M. R. (2002). Operational aspects of fiscal policy in oil-producing countries (No. 2-177). International Monetary Fund.
- Bems, R. & Irineu, C. (2011). The Current Account and Precautionary Savings for Exporters of Exhaustible Resources. Journal of International Economics, 84(1), 48-64.
- Blanchard, O. (1990). Suggestions for a New Set of Fiscal Indicators. OECD Economics Department. Working Paper 79.
- Bohn, H. (1995). The sustainability of budget deficits in a stochastic economy. Journal of Money, Credit and Banking, 27, 257-271.
- Buiter, H. W. & Patel, U. (1992). Debt, deficits and inflation: an application to the public finances of India. Journal of Public Economics, 47, 171-205.
- Buiter, H. W., Persson, T. & Minford, P. (1985). A Guide to Public Sector Debt and Deficits. Economic Policy, 1, 13-79.
 - Collier, P.,  van der Ploeg, R., Spence, M. & Venables, A. J. (2009). Managing Resource Revenues in Developing Economies. IMF Staff Papers, 51(7), 84-118.
- Chen, S. W. & Lin, S. M. (2014). Non-linear dynamics in international resource markets: Evidence from regime switching approach. Research in International Business and Finance, 30, 233-247.
- Escario, R., Gadea, M. & Sabate, M. (2012). Multicointegration, seigniorage and fiscal sustainability. Spain 18572000. Journal of Policy Modeling, 34, 270-283.      
- Filis, G., Degiannakis, S. & Floros, C. (2011). Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries. International Review of Financial Analysis, 20(3), 152-164.
- Hamilton, J. D. & Flavin, M. (1985). On the limitations of government borrowing: A framework for empirical testing. American Economics Review, 76, 808-819.
Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93, 345–368.
- Hausmann, R., Powell, A. & Rigobon, R. (1993). An optimal spending rule facing oil income uncertainty (Venezuela). External shocks and stabilization mechanisms, 113-71.
- Issler, J. & Lima, L. (2000). Public debt sustainability and endogenous Seigniorage in Brazil: time-series evidence from 1947-1992. Journal of development economies, 62, 131-147.
- Jafari Samimi, A., Karimi, S. & Montazeri Shurkachali, J. (2017). Sustainability of Government Debt in Iran: Evidence from the STR Model. JournalofEconomics and Modeling, 8 (30), 31-61, (In Persian).
- Kia, A. (2008). Fiscal sustainability in emerging countries: evidence from Iran and Turkey. Journal of Policy Modeling, 30, 957-972.
- Miller, M. (1983). Inflation Adjusting the Public Sector Financial Deficit, in Kay, J. (ed.), London: Basil Black-Well.
- Mousavi Mohseni, M. R. & Taheri, H. (2009). Evaluation of the Government's Financial Stability in Iran. Iranian Journal of Economic Research, 13(41), 137-123 (In Persian).
- Nadali, M. A. (2015). Financial stability and the necessity of its monitoring in the context of the resilient economy governing the Iranian economy. Quarterly Journal of Trend, 71, 168-145 (In Persian).
- Sayadi, M. & Bahrami, J. (2015). Evaluating the Effects of Oil Income Investment Policies on Economic Performance Indicators in Iran: Dynamic Stochastic General Equilibrium (DSGE). Journal of Iranian Energy Economics, 4 (16), 85-135 (In Persian).
 -Ploeg, F. & Venables, A. J. (2011). Natural Resource Wealth: The challenge of managing a windfall. Centre for Economic Policy Research.
- Zarei, J. & Jalali Naeini, S. A. R. (2013). Financial Stability Test in Iran. Quarterly Journal of Monetary and Banking Research, 6(18), 62-63 (In Persian).
- Zibaei, M. & Mazaheri, Z. (2009). Government Size and Economic Growth in Iran with Emphasis on the Growth of the Agricultural Sector: A Threshold Regression Approach. Journal of Agricultural Economics and Development, 23(1), 20-11 (In Persian).