The Linkage between the Oil and Non-oil Sectors: A Panel VAR Approach
IMF Working Papers, May 1, 2010
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- The Linkage between the Oil and Non-oil Sectors: A Panel VAR Approach
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Bibliographic details
- Authors: Nir Klein
- Published: May 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455200771.001
Summary
- Recent empirical studies have shown an inverse relation between natural resource intensity and long-term growth, implying that the natural resources generally impede economic growth through various channels (the “natural resource curse”).
- This paper departs from these studies by exploring the intersectoral linkages between oil and non-oil sectors in a cross-country perspective.
- The paper shows that the applicability of “natural resource curse” across oil-based economies should be treated with caution as the externalities of the oil sector highly depend on the countries’ degree of oil-intensity.
Key findings
- In low oil-intensity economies, the incentives to strengthen both fiscal and private sector institutions lead to positive inter-sectoral externalities.
- In high oil-intensity economies, weaker incentives adversely affect fiscal and private sector institutions and consequently lead to negative inter-sectoral externalities.
- The analysis emphasizes that the sign and magnitude of oil-sector externalities on non-oil sectors are conditional on oil-intensity rather than uniform across oil exporters.
Methodology (as described)
- Cross-country perspective using a Panel VAR approach to explore intersectoral linkages between oil and non-oil sectors.
Policy implications / Interpretations (drawn from results)
- The “natural resource curse” should be applied with caution: policy diagnosis must account for countries’ degree of oil-intensity.
- Strengthening fiscal and private sector institutions may generate positive spillovers from the oil sector to the non-oil sector in low oil-intensity economies.
- High oil-intensity economies face greater risk of negative inter-sectoral externalities associated with weaker incentives to reinforce institutions.