Oil Prices, External Income, and Growth: Lessons From Jordan

December 1, 2011

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Mehdi Raissi, and Kamiar Mohaddes. Oil Prices, External Income, and Growth: Lessons From Jordan, (USA: International Monetary Fund, 2011) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper extends the long-run growth model of Esfahani et al. (2009) to a labor exporting country that receives large inflows of external income?the sum of remittances, FDI and general government transfers?from major oil-exporting economies. The theoretical model predicts real oil prices to be one of the main long-run drivers of real output. Using quarterly data between 1979 and 2009 on core macroeconomic variables for Jordan and a number of key foreign variables, we identify two long-run relationships: an output equation as predicted by theory and an equation linking foreign and domestic inflation rates. It is shown that real output in the long run is shaped by: (i) oil prices through their impact on external income and in turn on capital accumulation, and (ii) technological transfers through foreign output. The empirical analysis of the paper confirms the hypothesis that a large share of Jordan's output volatility can be associated with fluctuations in net income received from abroad. External factors, however, cannot be relied upon to provide similar growth stimuli in the future, and therefore it will be important to diversify the sources of growth in order to achieve a high and sustained level of income.

Subject: Commodities, Foreign exchange, Inflation, National accounts, Oil, Oil prices, Personal income, Prices, Purchasing power parity

Keywords: Co-trending restriction, Error correction term, Error correction term of the long-run output equation, Error-correction equation, External income, Fisher equation, Foreign direct investment, Foreign output and inflation shocks and error correcting relations, Global, Growth models, Inflation, Interest rate, Jordanian economy, Least squares, Long-run relations, LR statistic, Multiple correlation coefficient, Oil, Oil income, Oil price shocks, Oil prices, Output equation, Personal income, Price boom, Purchasing power parity, Remittances, Test statistics, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/291
Stock No:

WPIEA2011291
ISBN:

9781463927257
ISSN:

1018-5941

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