Dynamic relationships between oil revenues, government spending and economic growth in an oil-dependent economy

The aim of this paper is to empirically examine the dynamic relationships between oil revenues, government spending and economic growth in the Kingdom of Bahrain. Oil revenues are the main source of financing government expenditures and imports of good and services. Increasing oil prices in the rece...

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Bibliographic Details
Published in:Economic modelling 2013-09, Vol.35, p.118-125
Main Authors: Hamdi, Helmi, Sbia, Rashid
Format: Article
Language:English
Subjects:
Bahrain
Crude oil prices
ECM
Economic growth
Economic models
Economic theory
Economics and Finance
Expenditures
Government expenditures
Government spending
Growth
Humanities and Social Sciences
Imports
International trade
Middle East
Oil industry
Oil revenues
Public expenditure
Revenue
Studies
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Summary:The aim of this paper is to empirically examine the dynamic relationships between oil revenues, government spending and economic growth in the Kingdom of Bahrain. Oil revenues are the main source of financing government expenditures and imports of good and services. Increasing oil prices in the recent years have boosted public expenditures on social and economic infrastructure. In this paper, we investigate whether the huge government spending has enhanced the pace of economic growth or not. To this end, we use a multivariate cointegration analysis and error-correction model and data for 1960–2010. Overall results suggest that oil revenues remain the principal source for growth and the main channel which finance the government spending. •We study the causality between oil revenues, government spending and economic growth in Bahrain.•We perform an econometric model based cointegration analysis and the error-correction model.•Results reveal that oil revenues are the main source of financing government expenditures.•The volatility of oil revenues may hinder the overall economic growth.•Bahrain needs to diversify further its economy.
ISSN:0264-9993
1873-6122
DOI:10.1016/j.econmod.2013.06.043