Oil Revenue Volatility, Sanctions and Mismanagement ... · Institutions and Macroeconomic Policies in Resource-Rich Arab Economies focuses on the unique features of the Arab World

Oil Revenue Volatility, Sanctions andMismanagement: Lessons from Iran

Kamiar MohaddesUniversity of Cambridge@KamiarMohaddes

Based on joint work with Hadi Salehi Esfahani (University ofIllinois), Jeff Nugent (USC), M. Hashem Pesaran (USC), Mehdi

Raissi (IMF), and Hoda Selim (IMF).

International Iranian Economic Association (IIEA)Sixth International Conference on the Iranian Economy

University of Naples ’L’Orientale’May 17, 2019

Institutions and Macroeconomic

Policies in Resource-Rich Arab Economies

edited by

kamiar mohaddes, jeffrey b. nugent,

and hoda selim

2also published by OXFORD UNIVERSITY PRESS

The Macroeconomics of the Arab States of the GulfRaphael Espinoza, Ghada Fayad, and Ananthakrishnan Prasad

The Rent CurseNatural Resources, Policy Choice, and Economic DevelopmentRichard M. Auty and Haydn I. Furlonge

The Tunisian Labor Market in an Era of TransitionEdited by Ragui Assaad and Mongi Boughzala

Crony CapitalismEdited by Ishac Diwan, Adeel Malik, and Izak Atiyas

2

Kamiar Mohaddes, Janeway Fellow in Economics, University of Cambridge, UK; Senior Lecturer and Fellow in Economics, Girton College, University of Cambridge, UK; Research Fellow, Economic Research Forum, Egypt.

Jeffrey B. Nugent, Professor of Economics, University of Southern California, USA; Senior Associate, Economic Research Forum, Egypt.

Hoda Selim, Research Fellow, Economic Research Forum, Egypt.

For over 80 years the Arab region has been deriving massive wealth from its natural resources. Its economic performance

has been at the mercy of the ebbs and flows of oil prices and its resources have been slowly depleting. The critical question

is how Arab countries might escape the oil curse.

Institutions and Macroeconomic Policies in Resource-Rich Arab Economies focuses on the unique features of the Arab World to explain the disappointing outcomes of macroeconomic policy. It explores the interaction between oil and institutions to draw

policy recommendations on how Arab countries can best exploit their oil revenues to avoid the resource curse. Case studies

and contributions from experts provide an understanding of macroeconomic institutions (including their underlying rules, procedures, and institutional arrangements) in oil-rich Arab

economies and of their political economy environment, which has largely been overlooked in previous research.

Institutions and Macroeconomic Policies in Resource-Rich Arab Economies offers novel macroeconomic policy propositions for exchange rate regimes, fiscal policy, and oil wealth distribution that is more consistent with macroeconomic stability and fiscal

sustainability. These policy reforms, if implemented successfully, could go a long way toward helping the resource-rich countries

of the Arab region and elsewhere to avoid the oil curse.

Jacket image: ARV / Alamy Stock Photo

9 780198 822226

ISBN 978-0-19-882222-6

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Institutions and M

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Iranian Economy: ChallengesI Iranian economy has been functioning below capacity due to years of economicmismanagement, 8 years of war with Iraq, prolonged and at times severe tradeand financial sanctions.

I High and persistent inflation. Annual rate of inflation has been around 20%and been persistently high whilst inflation has been falling worldwide.

I High unemployment and low female labour participation: Unemployment hasbeen consistently above 12% with youth and female at 30-40%.

I Fragile banking and financial sector. US financial sanctions against Iran hasworsened the risk facing the commercial banks.

I Continued dependence on oil revenues: over 60% of foreign exchange revenuesand 40% of government revenues are from oil exports.

I Rising income inequality and poverty.

Volatility is a Major ProblemI If commodity revenue volatility and external shocks are not managed properly,they can result in higher GDP growth volatility and disappointing long-termeconomic performance.

I Since the Revolution the average output growth has been around 2% withvolatility of 7.7%, whilst world output growth has averaged at 2.9% withvolatility of 1.3%. That is Iran’s economy has been 6 times more volatile ascompared to the rest of the world.

I We need strong institutions and better macroeconomic policies.

Output Growth and Volatility in IranI Three main sources of volatility: oil revenues, sanctions,and mismanagement of the economy.

The Volatility CurseI While commodity price booms significantly increase economic growth, volatilityaffects it negatively (for more details see Mohaddes and Raissi, 2017).

I Fiscal and current account balances of commodity-exporting countries areaffected by swings in resources revenues with destabilizing effects on themacroeconomy.

higher volatility in output dampens growth was in fact discussed extensively in the seminal

paper of Ramey and Ramey (1995). Moreover, we note that in our sample of 69 commodity-

dependant countries, there appears to be a positive association between CToT volatility and

GDP growth volatility– which in turn has a negative effect on output growth.

Figure 1: Scatter Plots of GDP Growth and Volatility of CToT against Volatilityof GDP Growth, 1981-2014

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UgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaUgandaBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina Faso

ZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambiaZambia

ArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmenia

AzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstan

Republic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian Federation

MongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongolia

.04

.02

0.0

2.0

4.0

6R

eal G

DP

Gro

wth

0 .05 .1 .15 .2 .25Real GDP Growth Volatility

NorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorway

IcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandIcelandAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandNew ZealandArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentina

Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)ChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChile

ColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombia

EcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuador

GuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaraguaNicaragua

PanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeru




Trinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrainBahrain




KuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOman QatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi Arabia






MyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarMyanmarIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesiaIndonesia



BotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaBotswanaCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroonCameroon



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GambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGhanaGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissau

GuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'Ivoire

KenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenya MadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawi

MaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMaliMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueMozambiqueNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNigerNiger


ZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegal

Sierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra Leone

NamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaSudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)U.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogoTogo





Republic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongolia

05

1015

CTo

T Vo

latil

ity

0 .05 .1 .15 .2 .25Real GDP Growth Volatility

Source: Authors’calculation based on data from Penn World Table Version 9.0 and International MonetaryFund International Financial Statistics databases. These are cross-sectional averages over 1981-2014.

Figure 2 depicts a simple bivariate relationship between CToT volatility and the growth

of real GDP per capita (as well as the growth rate of TFP and physical capital accumulation)

in our sample of 69 countries over the period 1981-2014. They suggest that CToT volatility

exerts a negative impact on economic growth operating mainly through lower productivity

growth and lower physical capital accumulation. The rest of the paper use the CS-ARDL

approach for estimation in order to investigate whether the above indicative results continue

to hold up once we deal with, for instance, possible endogeneity problems, dynamics, cross-

country heterogeneity and cross-sectional dependence. We will also investigate the potential

role of SWFs and institutions in dampening the negative effects of CToT volatility on growth.

10

The Volatility CurseI Do natural resource abundant countries have fewer possibilities fortechnological progress?

I Is the capital accumulation another important channel through which volatilityaffects GDP per capita growth?

Figure 2: Scatter Plots of CToT Volatility against Real GDP growth, TFPGrowth and Capital Accumulation, 1981-2014




ColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemala














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KenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenya

MadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascar

MalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawi





ZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibia

Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)U.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: Mainland






Republic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian Federation


.04

.02

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0 5 10 15CToT Volatility


ArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentina

Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)Bolivia (Plurinational State of)

ChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileChileColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombia

EcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuador

GuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemala











Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of)Iran (Islamic Republic of) IraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraq








GabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenya




ZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra Leone

NamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaSudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)

U.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: Mainland


Burkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina FasoBurkina Faso


KazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstan

Republic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of Moldova

Russian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian Federation


.02

.01

0.0

1.0

2To

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r Pro

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ivity

Gro

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ColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaColombiaEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaGuatemalaHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHondurasHonduras


PanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaPanamaParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayParaguayPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruPeruUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguayUruguay


JamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaJamaicaTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and Tobago




IraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqIraqKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitKuwaitOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOmanOman

QatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarQatarSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi ArabiaSaudi Arabia








AlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAlgeriaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngolaAngola





GabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabonGabon

GambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambiaGambia


GuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissauGuineaBissau

GuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuineaGuinea

Côte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'IvoireCôte d'Ivoire

KenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaKenyaMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMadagascarMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawiMalawi





ZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabweZimbabwe

SenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSenegalSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra LeoneSierra Leone

NamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibiaNamibia

Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)Sudan (Former)

U.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: MainlandU.R. of Tanzania: Mainland




ArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmeniaArmenia AzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijanAzerbaijan

KazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanKazakhstanRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRepublic of MoldovaRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationRussian FederationMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongoliaMongolia

.05

0.0

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ical

Cap

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Source: Authors’calculation based on data from Penn World Table Version 9.0 and International MonetaryFund International Financial Statistics databases. These are cross-sectional averages over 1981-2014.

3.1 The Long-Run Effects of Volatility

To examine the long-run effects of CToT volatility on output growth, we estimate the fol-

lowing panel CS-ARDL model:

∆yit = c∗yi +

p∑l=1

φil∆yi,t−l +

p∑l=0

β′

ilxi.t−l +

q∑l=0

ail∆yt−l +

q∑l=0

b′

ilxt−l + εit, (11)

where ∆yit is the growth rate of real GDP per capita for country i and year t, xit is a 2× 1

vector of explanatory variables, namely the growth rate of the CToT index, gCToT,it, and

its volatility, σCToT,it. The terms ∆yt and xt denote the simple cross-section averages of

∆yit and xit in year t. Moreover, to determine the channel(s) through which GDP growth

is negatively affected by CToT volatility in our sample, we follow Beck et al. (2000) in

investigating two possible sources which are acknowledged in the literature, namely, TFP

and physical capital investment. We therefore also estimate the following regressions:

∆wit = c∗wi +

p∑l=1

φil∆wi,t−l +

p∑l=0

β′

ilxi.t−l +

q∑l=0

ail∆wt−l +

q∑l=0

b′

ilxt−l + εit, (12)

where ∆wit = lnWit − lnWit−1 is the growth rate of Wit = {TFP or physical capital percapita for country i and time t}, while ∆wt is the simple cross-sectional average of ∆wit,

with all other variables as defined in equation (11). However, data on TFP and physical

capital for some of the countries in our dataset were not available, and so these regressions

are based on a sample of 49 countries (those which are not denoted by 2 in Table 1).

11

A New Oil Order: A Low Oil Price Environment?I The technological advancements over the last decade have not only reduced thecosts associated with the production of unconventional oil, but they have alsomade extraction of tight oil resemble a manufacturing process in which onecan adjust production in response to price changes with relative ease.U.S. Oil Production & Rig Count

NOTES: Dashed line shows the forecast as of 3/12/19. Rig count

series shows the last weekly count each month.

SOURCES: Baker Hughes; Energy Information Administration.

U.S. Oil Production & Rig Count

Federal Reserve Bank of Dallas

300

500

700

900

1,100

1,300

1,500

1,700

3

5

7

9

11

13

15

17

2013 2014 2015 2016 2017 2018 2019 2020

U.S. crude oil production

Million barrels per day

U.S. oil rig count

Number of active rigs

Jan

11.9

Mar

816

Impact of the U.S. Oil Supply Revolution on Real Output(Mohaddes and Raissi, 2019)

Notes: Figures are median (blue solid) and median target (black long-dashed) impulseresponses to a one standard deviation fall in the price of oil, equivalent to anannualized drop of 51% in year 1 and 45% in year 2, together with the 5th and 95thpercentile error bands. The impact is in percentage points and the horizon is quarterly.

A New Oil Order: A More Volatile EnvironmentI With oil prices being 50% higher than January 2019, are we in a low oilprice environment?

I This is not just about low oil prices, but more uncertainty and morevolatility.

I Bottom line: policy makers should think about volatility as opposed to(just) sustained low or high prices.

New Source of Volatility: the Trump FactorI President Trump is the new “swing factor” in global oil markets.I What are the effects of the competing policy objectives of the Trumpadministration on the oil market?

I Geopolitical agenda: sanctions on Iran;I Domestic political agenda: lowering American petrol prices; andI Trade wars with China and the EU.

What about OPEC Policy?

I Major source of oil price volatility. Just take the last few years, where anincrease in supply has been quickly reversed.

I In 2015: waging a price war against U.S. shale oil producers;I In 2016: maximizing sales before OPEC agreements;I In 2018: pressure due to sanctions on Iran and President Trump (asdiscussed).

Impact of a Negative Oil Revenue Shock for OPECCountries (Mohaddes and Raissi, 2019)

Notes: Figures are median generalized impulse responses to a one standard deviationfall in oil revenue, together with 95 percent bootstrapped confidence bounds. Theimpact is in percentage points and the horizon is quarterly.

The Role of Institutions and Policy FrameworksI What is the potential role of institutions and policy frameworks in dampeningthe negative effects of volatility.

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MoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMoroccoMorocco

NigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeriaNigeria

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0.0

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0 .1 .2 .3 .4Fiscal Policy Volatility

Primary Commodity Exporters

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CanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanada

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South AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth AfricaSouth Africa ArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaArgentinaBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazilBrazil

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EcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuadorEcuador

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VenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuelaVenezuela

Trinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and TobagoTrinidad and Tobago

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6070

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Inst

itutio

nal Q

ualit

y

0 .1 .2 .3 .4Fiscal Policy Volatility

Primary Commodity Exporters

Source: K. Mohaddes, J.B. Nugent, and H. Selim (2019), Institutions andMacroeconomic Policies in Resource-Rich Arab Economies, Oxford University Press.Notes: This volatility is interpreted as the component of discretionary policy which isnot related to smoothing the business cycle, such as changes in political preferences orthe decision by the politicians to generate a short-term boom so as to keep thepopulation happy—as was seen in the region following the Arab Spring.

Sanctions: A Counterfactual Exercise

Source: Mohaddes and Pesaran (2016). “Country-Specific Oil Supply Shocks and theGlobal Economy: A Counterfactual Analysis”. Energy Economics 59, 382-399.





Iran needs a much more Diversified and Effi cient Economy

Fiscal PolicyI Revenue re-balancing: raising non-distortionary taxes, such as consumption tax(VAT) and reducing the dependence on oil revenue;

I Improved tax administration; and

I Spending side: better targeting of subsidies (electricity, water, petrol). Urgentreforms are needed in the area of energy subsidy — which results in waste,economic distortions and air pollution.

I Reducing fiscal dominance.

I Transparency: on public sector balance sheet (not just the central government)I "publication of debt and asset data would enhance transparency andprovide investors greater assurance about the government’s capacity torepay debt and ultimately lower borrowing costs.

I The Debt Management Offi ce: "The on-going audit of arrears hasrevealed government arrears of about 30 percent of GDP which broughtthe debt-to-GDP ratio to near 50 percent in 2016/17. The audit showsthat the central government’s (CG) arrears are owed to banks, privatecontractors, and social security institutions."

Monetary Policy

I Keeping inflation in check. This will require:

I management of inflation expectations by building confidence in thegovernment and the monetary authorities; and

I that the nominal interest rates should be set above the level of prevailinginflation expectations. Otherwise there will be excess demand for loans(primarily destined for speculative purposes). In the case of Iran, followingsuch a policy is particularly important, due to the presence of politicallystrong semi-government agencies with access to bank loans.

I A degree of Central Bank Independence; public sector fiscal balance andbanking reforms.

I Stability of the financial system.

I Orderly management of foreign exchange markets!

High and Persistent Inflation

Real Output Growth and Inflation, 1937—2010

0.2

0.0

0.2

0.4

0.6

0.8

1937 1956 1975 1994 2010

Real output growth Inflation

Source: K. Mohaddes and M. H. Pesaran (2014), One Hundred Years of Oil Incomeand the Iranian Economy: A Curse or a Blessing?, in P. Alizadeh and H. Hakimian(eds.), Iran and the Global Economy: Petro Populism, Islam and Economic Sanctions,Routledge, London.

Badly Needed Structural Reforms

I It will be important to reform the economic structure, increasing transparencyand openness to private sector initiatives and foreign investment and improvethe business environment in general.

I This may be very threatening to existing economic vested interests. Removalof price controls and untargeted subsidies may also be politically diffi cult.

I Reforms of the banking sector (stricter supervision and increasedcapitalization).

I Labour market reforms should be in place to increase labour force participation(in particular female).

I Product and service market reforms.

The Role of Revolutionary Guard in the Economy

I Scope of IRGC Activities: It is estimated that IRGC control between 10-30% ofthe Iranian economy. There are few public details available about theRevolutionary Guards’business interests. Companies known to be affi liated toIRGC include Sadra Iran Maritime Industrial Company (oil and gas projects),Shahid Rajaee Professional Group (construction), Etemad Mobin DevelopmentCompany (bought Telecom Company of Iran for $7.8bn in 2009), Ansar Bankand Sepanir Oil and Gas Engineering.

I The economic reach of IRGC is wide-ranging and cover many other sectors,such as health, agriculture and petrochemicals.

I Due to the semi-state nature of the companies affi liated to the IRGC, they havedistortionary effects on the private sector, are not adequately accountable, andtend to encourage cronyism.

I With new US sanctions against IRGC, there is the additional concern thatIRGC’s economic involvement might deter foreign investors who fear they couldinadvertently end up doing business with entities linked to IRGC

Concluding Remarks

I Sanctions have, no doubt, harmed the Iranian economy —but one shouldnot underestimate the damage done by years of economicmismanagement.

I Iran needs a more resilient economy, which implies:

I strengthened institutions and policy mechanisms which act as shockabsorbers in the face of high levels of oil revenue volatility

I better conduct of fiscal and monetary policyI growth-friendly fiscal policies as well as structural reformsI private sector investmentI diversificationI regional development policies should be initiated that give priorities toremote regions that have been left behind

I the role of semi-government agencies in initiating politically motivatedexpenses, and having priority over access to bank loans and credits mustalso be curtailed.

Concluding Remarks

I In order to promote growth, policies should be devised:

I to control inflation;I to serve as shock absorbers negating the adverse effects of oil revenuevolatility;

I to reduce rent seeking activities; andI to prevent excessive dependence of government finances on oil income.

I Bottom line: Iran needs to adopt a comprehensive package of fiscal,monetary, financial and structural reforms aimed at addressing itsinter-related challenges.

I The policy choices are not easy!

Documents

Oil Revenue Volatility, Sanctions and Mismanagement ... · Institutions and Macroeconomic Policies in Resource-Rich Arab Economies focuses on the unique features of the Arab World