Do The Impacts of Oil and Natural Gas Price Shocks on Economic Growth Differ Among Arab OPEC Countries? A panel Data Study

Abstract

The objective of this paper is to explain the impacts of changes in the oil price and the natural gas price on economic growth in six countries namely Algeria, Iraq, Kuwait, Libya, Saudi Arabia, and United Arab Emirates by encompassing a panel data analysis on the six countries starting from 2001 till 2019. To reach our objective, the research examined the impact of some independent variables namely employment in industry, employment in services, gross capital formation, government expenditure, consumption expenditure in addition to our two focus variables which are the price of oil, and price of natural gas on the dependent variable GDP in the tested six countries. We also used data from the World Bank's World Development Indicators to empirically validate our models. Moreover, the study estimated several econometric models done through statistical program E-Views such as the common constant. The common constant model with SUR weights showed that there is a negative relation between the dependent variable GDP growth and each of consumption expenditure and employment in services. On the other hand, the same model proved a positive relation between GDP growth and each of government expenditure and the price of oil. Such results were confirmed by the ARDL long run findings which showed that there is a negative relation between the dependent variable GDP growth and the same two variables, but added an additional factor which is the price of natural gas as a factor which negatively impacts GDP. On the other hand, the same model added the price of oil as an important positive influencer to GDP, besides government expenditure and gross capital formation. Lastly, according to the results, we suggest that OPEC countries take advantage of any increase in oil prices to foster more economic growth. Even though the impact of natural gas price increases on economic growth is negative in long run, yet in the short term, increases in the price of natural gas had a positive effect on GDP growth in the six countries, with the impact being the highest in Algeria. Accordingly, rises in natural gas price may temporarily enhance GDP growth in the short run.