The impact of oil price shocks on the economic growth of selected MENA countries

Abstract

This paper examines how oil price shocks affect the output growth of selected MENA countries that are considered either net exporters or net importers of this commodity, but are too small to affect oil prices. That an individual country's economic performance does not affect world oil prices is imposed on the Vector Autoregressive setting as an identifying restriction. The estimates suggest that oil price increases have a statistically significant and positive effect on the outputs of Algeria, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Syria, and the United Arab Emirates. However, oil price shocks do not appear to have a statistically significant effect on the outputs of Bahrain, Djibouti, Egypt, Israel, Jordan, Morocco, and Tunisia. When we further decompose positive oil shocks such as oil demand and oil supply for the latter set of countries, oil supply shocks are associated with lower output growth but the effect of oil demand shocks on output remain positive. Copyright © 2010 by the IAEE.