Don’t Blame the Abundance of Oil! The Volatility in Oil Revenues Combined With Poor Governmental Responses to these Volatilities Drives the Resource Curse

This blog is written by Kamiar Mohaddes, Senior Lecturer and Fellow in Economics at Girton College, University of Cambridge, UK.

According to the resource curse paradox, abundance of oil (natural gas, minerals and other non-renewable resources) is believed to be an important determinant of economic failure. But is the poor performance of resource-rich countries, when compared to countries which are not endowed with oil, due to the abundance of oil in itself or is the curse instead due to price volatility in global oil markets and production volatility due to political factors (such as wars and sanctions)? More importantly, is there a role for institutions and the government (in particular fiscal policy) in offsetting some of the negative growth effects due to the curse?

What do we know about the curse?
Although the early literature showed the existence of a negative relationship between real GDP per capita growth and resource/oil abundance, more recent evidence is not so clear cut. Firstly, the early literature used cross-country analysis that fails to take account of dynamic heterogeneity and error cross-sectional dependence, and this could bias the results. Secondly, the early analysis ignores the effects of oil revenue volatility on growth, which turns out to be important.

Figure 1 shows that for major oil producers, there is a positive relationship between the volatility in oil revenue and GDP growth (measured by its standard deviation over the full sample), but a clear negative relationship between real GDP per capita growth and its volatility. This suggests that the excess volatility in oil prices and production is associated with higher volatility in GDP growth, which in turn has a negative effect on output growth. We shall see now whether these results continue to hold when we use more advanced econometric techniques.

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It Takes Two Functioning Cylinders to Operate the Macroeconomic Locomotive: The Fiscal-Monetary Interdependence in Oil-Dependent Arab Economies

This blog is written by Ibrahim Elbadawi, director of the Macroeconomics Research and Forecasting Department at the Dubai Economic Council

As part of the ERF research theme on “natural resource management and economic diversification”, the research project on “Monetary and Fiscal Institutions in Resource-Rich Arab Economies” addresses, among other issues, the interdependence between fiscal and monetary institutions. In this context, the research considered the two central policy questions of the fiscal foundation of the choice of exchange rate and monetary regimes and the capacity of fiscal and monetary institutions to conduct counter-cyclical fiscal policy during oil busts and booms. These two issues are of profound policy relevance to the oil-dependent Arab economies. Also, they have been the subject of high profile academic research in the context of the paradigm shift of monetary economics research toward focusing on the fiscal-monetary policy interdependence and on institutions and regimes rather than just policies.

What is fiscal dominance?

In fiscally dominated economies (FD), exchange rate regimes are determined by fiscal, not monetary considerations. This is because such countries are likely to be characterized by persistent and high deficits; limited capacity to raise tax revenues; limited capacity to rein on public expenditure; and hence likely to try to maximize the inflation tax. To stem the tendency of the economy to experience persistent inflationary pressures, they resort to exchange rate stabilization by adopting fixed or heavily managed exchange rate regimes. However, due to the high inflationary inertia (i.e., inflation today fueling expectations of higher inflation in the future), exchange rate stabilizations in FD economies often times fail, leading to devaluation crises and further inflationary pressures. Therefore, credible monetary and exchange rate regimes require that economies be free from fiscal dominance.

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Institutions, Oil and Macroeconomic Management… What Does it Take to End the Resource Curse?

This blog is written by Hoda Selim, an economist at the Economic Research Forum

Natural resource wealth has been often blamed for the poor economic and development outcomes in oil-rich Arab countries. It has been claimed that the special characteristics of natural resources, such as price volatility, uncertainty and exhaustibility, pose challenges for effective macroeconomic management. Symptoms of the oil curse are many, and include: overall macroeconomic volatility, excessive borrowing during resource busts, Dutch disease, excessive consumption, and low or inefficient total investment.

In this context, policymakers were advised to improve the management of their wealth. But, could it be that long-standing and deep-rooted but weak institutions in the Arab World are the root cause of the oil curse?

Research has attempted to show that it was oil that hurts democracy through the creation of a rentier state. However, the current literature has almost reached a convergence that the resource curse is conditional on the quality of institutions (i.e., that resource-rich economies with strong political checks and balances are able to turn the resource curse into a blessing). In other words, political institutions shape incentives for economic institutions or, alternatively, they affect how resource rents are collected, allocated and used, and therefore influence macroeconomic management and economic outcomes.

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ERF to Hold Kuwait Conference on Monetary and Fiscal Institutions in Resource-Rich Arab Economies

The Economic Research Forum (ERF) will hold a conference on Monetary and Fiscal Institutions in Resource-Rich Arab Economies on November 4-5, 2015, in Kuwait City, Kuwait. The event, being held in cooperation with the Arab Fund for Economic and Social Development, is intended to address the challenges facing macroeconomic institutions in oil-rich Arab countries, particularly those responsible for monetary and fiscal policies.

The problem is that while oil-rich Arab countries account for close to half of global oil reserves and a quarter of natural gas reserves, they have neither achieved economic prosperity nor approached the ranks of developed nations. The efficiency (or lack thereof) of monetary and fiscal institutions in resource-rich Arab economies could explain this phenomenon, at least partially.

More than 100 participants from the region and abroad will examine the prospects and policy options for achieving fiscal and monetary stability in oil-rich Arab countries. Over five sessions and a panel discussion, experts will try to understand the rules and procedures governing fiscal and monetary policies in oil-rich Arab countries, the degree of independence and interaction between fiscal and monetary institutions, and the influence of politics on both.

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Religion: A Plural Reality with Multiple Meanings

This blog is written by Political Science Professor and former Parliamentarian Dr. Mona Makram-Ebeid


The effects of the restructuring of traditional state power engendered by globalization on the political, economic and security processes of different countries in the Arab World, particularly after the Arab spring uprisings, are still in the making.

The changes in each of the countries represent different paths leading toward a shared model of the “new” Arab state. Since the 19th century, religious life has witnessed changes of different kinds, but was unable to settle into a constant and sustainable model that could serve as the basis for a new religious order.

There is no doubt that disillusionment with government and religious authorities is helping fuel a re-examination of religious discourse. As citizens begin to read religious texts with critical intelligence they will see through the myths, the inconsistency with principles and the cultural prejudices and literary devices imposed by humans on interpretation of the text. A new understanding of religion is the pre-requisite of any social change.

Majority Muslim countries are today faced with a three sided “prison,” namely: an archaic Islamic past, a seductive Western future, and the problematic present.

Half an ounce of gold

In the seventh century, that is how much most of Eastern Christians had to pay for the privilege of living under the protection of the Caliphate. If they did not want to pay the Jizya (the levy) they could convert or “face the sword.” Today, in the 21st century, many Christians (mainly in Syria and Iraq) are given the same choice! But this time the offer comes from the Islamic State (ISIS also known as Daesh)! whose objective is to have a Christian- free Middle East.

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The Empowerment of Women in the Household starts with their Empowerment in the Market

This blog is written by Dr. Zafiris Tzannatos, Senior Consultant for Strategy and Policy


A precondition for effective bargaining (or, as some put it, negotiation) is to have some kind of power. This power can derive from “voice,” whereby you put your claim out in the open and hope to get a favorable response (think of shaming your spouse or seeking legal recourse).  Or, if you have an acceptable alternative, power can take the form of “exit” (voting with your feet: think of divorce or emigration when political/economic conditions deteriorate).

Women did not have much of either option in the past. Their voices were silenced by patriarchal institutions, work opportunities were few and exit options (to where?) were limited. Of course, individuals can rise or fall depending on the circumstances they face and their own deeds.  However, collectively we are bound by the constraints imposed by prevailing economic, societal and political institutions, or, in other words, the laws, regulations, norms, culture, customs, and religion that provide the framework within which two fundamental human activities take place: production/market and reproduction/family (both in their broadest sense, i.e., including all transactions and types of households).

Production and reproduction have for long been characterized by a strict division of labor. This division started becoming blurred in high-income countries after World War II. In the 30 years that followed the end of the war (“Les Trente Glorieuses”), fast economic growth led to full employment conditions.

As the limited supply of male workers started to be exhausted, real wages started rising and, with them, family incomes. Rising incomes reduced the need for women to work in what used to be their main “employers” before the War (farming and domestic service) or to even work at all. On the other hand, rising wages made staying at home increasingly expensive for women.  The issue thus became an empirical one: Would the wage carrot win over the stick of need?

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The Gender Gap Runs Deeper than Religion or Education

This blog was written by Rice University Professor of Economics and Statistics Mahmoud El-Gamal

CAPMAS, the official Egyptian statistical agency, announced in 2014 that job market participation rates were three times higher for males (at 72.3%) than for females (at 23.1%). The average figures for the entire MENA region are slightly more lopsided, as reported by the World Bank based on ILO estimates, at 75% for males, and 22% for females over 15 years of age. Researchers noted that the gender gap in labor market participation in MENA is three times its counterpart in other emerging regions. Had this gap been two thirds of its size over the past decade, International Monetary Fund researchers calculated (box 1.3, p. 29), regional GDP would have been a trillion Dollars higher for that decade.

Social attitudes may hold the key to this large gender gap in labor market participation. Wave 6 of the World Values Survey (WVS6), collected between 2010 and 2013, sheds significant light on this issue. This wave of the survey covered 55 countries, including twelve countries from MENA (Algeria, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Palestine, Qatar, Tunisia, and Yemen), to which I added Turkey, which is one of the ERF countries, to form MENAT.


It’s Not Simply An Islamic Issue


In what follows, I will focus mainly on one question in particular that was asked in WVS6: “When jobs are scarce, men should have more right to a job than women,” eliciting responses of “Agree,” “Neither,” or “Disagree.”

Affirmative responses to this question in MENAT (at 67.3%) were more than twice as high as they were for the remaining 42 countries (31.1%). The higher rates applied to both genders (74.7% for males and 60% for females in MENAT, as compared to 35.7% for males and 27% for females outside MENAT).

In the entire sample, the percentage of Muslims who agreed with the statement (at 61.8%) was nearly double the percentage of non-Muslims (at 32.5%). However, majority-Muslim populations do not entirely explain the difference in responses between MENAT and the rest of the world. In fact, within MENAT, the percentage of Muslims who agreed with the statement (at 66%) was less than the percentage of non-Muslims who did (at 68.7%).

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