ESSAYS IN OIL PRICE SHOCKS AND MACROECONOMICS OF OIL EXPORTING COUNTRIES

Abstract

The central issue that this dissertation tries to address is the relationship between oil price shocks and the macroeconomics of oil exporting countries. For all those who had a chance to live in an oil exporting countries, it is evident that oil revenue plays a major role to induce ups and downs in economy and also in politics. I tried to address this phenomenon in the first chapter in which the relationship between oil price shocks and business cycles is investigated. In the first chapter it is shown that in some oil exporting countries like Kuwait, Venezuela and Libya, the impact of oil price shock is conditional on the cycle of the economy. An oil price shock has different effect when the economy is in boom than when it is in bust. Iran is not included in the sample of countries of this chapter since exogenous radical political events like revolution, persistent war, sanction, short term civil war and so on, makes the performance of the economy too volatile to be able to fit its data with regime switching models. This approach works well when changes are smooth. Therefore, I analyzed the case of Iran in a separate chapter through the VAR and SVECM framework. This paper examines the well-known Dutch disease hypothesis for the case of Iran. The result of second chapter partially contradict the prediction of this hypothesis since it is shown that positive oil price shock has permanent positive effect on GDP which is consistent with the finding of Esfahani, Mohades and Pesaran (2009). Success of populist candidate in presidential election in Iran and Venezuela motivated the writing of the first paper. This paper explores the relationship between quality of institution and the composition of government budget. It shows that when the quality of institution is low, majority of constituency prefer direct transfer rather than public spending on necessary and productive public goods, although investment in public goods is a prerequisite for development. But when the quality of institution is high, voters choose public investment. That is the cause of the difference in the public choice of two countries: Norway and Venezuela. This is in line with the finding of the literature on political economy of oil. Therefore, all three chapters although are different in method and content but concern a central issue which is the role of oil in the economy of oil exporting countries