Doctor of Philosophy
Department of Economics
Rammadhan, Mohammad Ali, The effects of the fluctuations in oil prices on the balance of payments of the GCC countries, Doctor of Philosophy thesis, Department of Economics, University of Wollongong, 2000. https://ro.uow.edu.au/theses/1324
Existing literature on economic development of the Gulf Co-operation Council (GCC) countries has many gaps. Perhaps, the most important is the impact of fluctuations in oil prices on the external performance of the GCC members. This thesis tries to bridge some of these gaps by examining the effects of fluctuations in oil prices on the balance of payments of four members of the GCC, namely, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates. The thesis determines the long-run relationship between oil exports and aggregate imports. The roles played by different components of final expenditures in determining the short and long-run demand for imports is assessed. The thesis also examines the impact of fluctuations in oil prices on the resource balance of the four members and analyses the trade relationship between the GCC and its major trading partners. The statistical results are used to forecast the future behavior of the balance of payments under various scenarios of oil prices. The thesis uses different econometrics techniques to achieve its objectives. These include: Engle-Granger and Johansen-Juselius methods of cointegration, shortrun, Error Correction Model (ECM), single and simultaneous equations models, and simultaneous forecasting models. The analysis suggests that fluctuations in oil prices over the period 1970-97 have affected the balance of payments of the GCC tremendously. The decline in oil revenues resulted in a decline in the proportion of oil exports to the GDP. The surplus in trade balance has also declined in all members. This has resulted in further deterioration in the current account of all members, except Kuwait. The Engle-Granger and Johansen-Juselius methods of cointegration revealed the existence of a long-run relationship between oil exports and imports in all GCC countries, with the exception of Kuwait. The cointegration analysis also revealed the existence of a long-run relationship between imports and components of final expenditures in all members, except the UAE. The econometric results suggest that the long-run demand for imports is mostly determined by investments expenditure in Kuwait, by exports expenditure in Oman, and by government consumption expenditure in Saudi Arabia. The simultaneous equations models results revealed that the resource balance of the members is negatively correlated with non-oil income and positively correlated with growth in the world economy. The non-oil income is more affected by changes in government expenditure than by changes in export revenues. It was also found that the response of the non-oil sector to changes in exports and government expenditure is subject to a partial adjustment mechanism. The GCC exports are strongly influenced by oil prices and growth in oil consumption of major trading partner. The simultaneous-equations model results also indicate that there are very significant feedback effects in GCC trade with the USA, the EU and Japan, when the GCC is taken as an integrated block. The results suggest that GCC exports are strongly influenced by oil prices and growth of GDP of the major trading partners. The results also suggest that GCC imports are positively related to the GCC exports to the specific partner within a partial adjustment mechanism. It was also found that the short and long-run marginal propensity of GCC imports from the major trading partners differ significantly. The forecasting analysis revealed that stabilization in oil prices will result in a continuous reduction in the surplus of the resource balance. The opposite is true if there was a steady growth in the world economy. A reduction in oil prices combined with a recession in world economy will result in a severe deterioration in the resource balance of the members of the GCC.