The Impact of Oil Price Shocks on Economic Growth - Iraq A Case Study for The Period (1968 - 2019) Using Symmetric and Asymmetric Co-Integration Analysis

Rizgar Abdlkarim Abdlaziz; Yaseen Abdulrahman Ahmed; Burhan Ali Mohammed; Kamaran Qader Yaqub

doi:10.25212/lfu.qzj.7.2.39

Authors

Rizgar Abdlkarim Abdlaziz Department of Management Technique, Technical College of Administration TCA, Sulaimani Polytechnic University, Sulaimani, Kurdistan Region, Iraq.
Yaseen Abdulrahman Ahmed Research center Sulaimani Polytechnic University, Sulaimani, Kurdistan Region, Iraq.
Burhan Ali Mohammed Department of Accounting. Darbandixan technical institute Sulaimani Polytechnic University, Sulaimani, Kurdistan Region, Iraq.
Kamaran Qader Yaqub Department of Accounting Technique, Technical College of Administration TCA, Suleiman Polytechnic University, Sulaimani, Kurdistan Region, Iraq.

DOI:

https://doi.org/10.25212/lfu.qzj.7.2.39

Keywords:

Oil price, Iraqi economy, economic growth, Symmetry, Asymmetry, Co-integration

Abstract

This study investigates the symmetry and asymmetry impact of oil price shocks on economic growth for the Iraqi economy during 1968-2019. For this purpose, we utilizing Linear Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL). The linear and nonlinear ARDL found that oil price shocks have a positive long-run impact on economic growth, as the F statistics are greater than the critical upper bound in all models. Moreover, the results of NARDL estimators show the asymmetry evidence: the oil price increases(LROILP+) have a greater and significant positive impact on real GDP per capita, While oil Price decrease coefficients(LROILP-) are insignificant and smaller than the oil price increase(LROILP+). That means an increase in oil price leads to raises in real GDP per capita. Consequently, the Iraqi economy and its Standard of living in terms of GDP per capita are sensitively affected by oil price changes due to the strong tide with world oil price changes. Then, diversify of the Iraqi economy, only the best choice in front of policymakers.

Downloads

Download data is not yet available.

References

Alnasrawi, A. (1994). The economy of Iraq: Oil, wars, destruction of development and prospects, 1950-2010 (No. 154). ABC-CLIO.

Abdlaziz, R. A. (2019). IMPACT OF OIL REVENUE ON ECONOMIC GROWTH, AGRICULTURE AND TOURISM SECTORS OF DEVELOPING OIL EXPORTING COUNTRIES. Universiti Putra Malaysia.

Abdlaziz, R. A., Rahim, K. A., & Adamu, P. (2016). Oil and food prices co-integration nexus for Indonesia: A non-linear autoregressive distributed lag analysis. International Journal of Energy Economics and Policy, 6(1), 82-87.6(1), 82–87.

al-Chalabi, I. (2007). Oil. The geopolitics of oil and Iraq. New England Journal of Public Policy, 21(2), 13.

Ahmad, A. H., & Masan, S. (2015). Dynamic relationships between oil revenue , government spending and economic growth in Oman. International Journal of Business and Economic Development, 3(2), 93–116.

AKTUĞ, S. S., Mehmet, D. A. Ğ., & STAR, H. R. (2019). THE IMPACT OF OIL PRICE ON ECONOMIC GROWTH: AN INVESTIGATION ON IRAQI ECONOMY. R&S-Research Studies Anatolia Journal, 2(6), 273-285.ov.tr/rs, 2(6), 273–285.

Al-shammari, H. A., Al-bakri, J. K., & Sinan, S. (2020). The Impact of Oil Price Shocks on the Iraq Economy – a Case Study for the Period 1990-2018. International Journal of Innovation, Creativity and Change., 12(10), 446–461.

Alkhathlan, K. a. (2013). Contribution of oil in economic growth of Saudi Arabia. Applied Economics Letters, 20(4), 343–348. https://doi.org/10.1080/13504851.2012.703310

Bernanke, B. S., Gertler, M., & Watson, M. (1997). Systematic Monetary Policy and the Effects of Oil Price Shocks. Brookings Papers on Economic Activity, 1997(1), 91–157. https://doi.org/10.2307/2534702

Berument, H., & Basak, N. (2010). The Impact of Oil Price Shocks on the Economic Growth of the Selected MENA Countries. The Economic Journal, 31(1), 149–176. https://doi.org/10.1111/j.1468-2354.2009.00568.x

Boone, P., Gazdar, H., & Hussain, A. (1997). Sanctions against Iraq–Costs of failure. New York: Centre for Economic and Social Rights.

Brown, M. E. (1979). The Nationalization of the Iraqi Petroleum Company. International Journal of Middle East Studies, 10(1), 107–124.

Brown, S. P. a, & Yucel, M. K. (2002). Energy prices and aggregate economic activity: An interpretative survey. Quarterly Review of Economics and Finance, 42(2), 193–208. https://doi.org/10.1016/S1062-9769(02)00138-2

Corden, W. M., & Neary, J. P. (1982). Booming Sector and Deindustrialization in a Small Open Economy. The Economic Journal, 92(368), 825–848. https://doi.org/10.1017/S0140525X00060003

El Anshasy, A. a., & Bradley, M. D. (2012). Oil prices and the fiscal policy response in oil-exporting countries. Journal of Policy Modeling, 34(5), 605–620. https://doi.org/10.1016/j.jpolmod.2011.08.021

Emami, K., & Adibpour, M. (2012). Oil income shocks and economic growth in Iran. Economic Modelling, 29(5), 1774–1779. https://doi.org/10.1016/j.econmod.2012.05.035

Farzanegan, M. R., & Markwardt, G. (2009). The effects of oil price shocks on the Iranian economy. Energy Economics, 31(1), 134–151. https://doi.org/10.1016/j.eneco.2008.09.003

Hamdi, H., & Sbia, R. (2013). Dynamic relationships between oil revenues, government spending and economic growth in an oil-dependent economy. Economic Modelling, 35, 118–125. https://doi.org/10.1016/j.econmod.2013.06.043

Hamilton, J. D. (1983). Oil and the Macroeconomy since World War II. Journal of Political Economy, 91(2), 228. https://doi.org/10.1086/261140

Hamilton, J. D. (2008). Understanding crude oil prices. Natonal Bureau of Economic Research, 1(w-14492). https://doi.org/10.1017/CBO9781107415324.004

Hamilton, J. D. (2009). Causes and Consequences of the Oil Shock of 2007-08 (No. w15002). National Bureau of Economic Researchhttps://doi.org/10.1017/CBO9781107415324.004

Hassani, M., & Nojoomi, A. (2010). An ARDL model of factor determining Iran's oil export revenues (1971-2008). International Review of Business Research Papers, 6(5), 17-35.

Hooker, M. a. (2002). Are Oil Shocks Inflationary ? Asymmetric and Nonlinear Specifications versus Changes in Regime. Journal of Money, Credit and Banking, 34(2), 540–561. https://doi.org/10.1353/mcb.2002.0041

Ibrahim, M. H. (2015). Oil and food prices in Malaysia: a nonlinear ARDL analysis. Agricultural and Food Economics, 3(1). https://doi.org/10.1186/s40100-014-0020-3

Isah, A., Dikko, H. G., & Chinyere, E. S. (2015). Modeling the Impact of Crude Oil Price Shocks on Some Macroeconomic Variables in Nigeria Using Garch and VAR Models. American Journal of Theoretical and Aplied Statisticournal of Theoretical and Aplied Statistic, 4(5), 359–367. https://doi.org/10.11648/j.ajtas.20150405.16

Ismail, K. (2010). The Structural Manifestation of the ` Dutch Disease ’: The Case of Oil Exporting Countries. IMF Working Papers, ((No. 10-103).).

Iwayemi, A., & Fowowe, B. (2011). Impact of oil price shocks on selected macroeconomic variables in Nigeria. Energy Policy, 39(2), 603–612. https://doi.org/10.1016/j.enpol.2010.10.033

Jiménez-Rodríguez, R., & Sanchez, M. (2005). Oil price shocks and real GDP growth: empirical evidence for some OECD countries. Applied Economics, 37(2), 201–228. https://doi.org/10.1080/0003684042000281561

Katzman, K., & Foreign Affairs, Defense, and Trade Division. (2003, April). Iraq: Oil-For-Food Program, International Sanctions, and Illicit Trade. Congressional Research Service, Library of Congress.

Kiseok Lee, Shawn Ni, A., & Ratti, R. A. (1995). Oil Shocks and the Macroeconomy: The Role of Price Variability. The Energy Journal, 16(4).

Lardic, S., & Mignon, V. (2006). The impact of oil prices on GDP in European countries: An empirical investigation based on asymmetric cointegration. Energy Policy, 34(18), 3910–3915. https://doi.org/10.1016/j.enpol.2005.09.019

Lardic, S., & Mignon, V. (2008). Oil prices and economic activity: An asymmetric cointegration approach. Energy Economics, 30(3), 847–855. https://doi.org/10.1016/j.eneco.2006.10.010

Lee, K., & Ni, S. (2002). On the dynamic effects of oil price shocks: a study using industry level data. Journal of Monetary Economics, 49(4), 823–852. https://doi.org/10.1016/S0304-3932(02)00114-9

Mehrara, M., & Mohaghegh, M. (2011). Macroeconomic Dynamics in the Oil Exporting Countries : A Panel VAR study. International Journal of Business and Social Science, 2(21), 288–296.

Mehrara, M., & Sarem, M. (2009). Effects of oil price shocks on industrial production: evidence from some oil-exporting countries. OPEC Energy Review, 33(3–4), 170–183. https://doi.org/10.1111/j.1753-0237.2009.00167.x

Mork, K. A. (1989). Oil and the Macroeconomy When Prices Go Up and Down : An Extension of Hamilton â€TM s Results. Journal of Political Economy1989, 97(3), 740–744.

Moshiri, S. (2015). Asymmetric effects of oil price shocks in oil-exporting countries: the role of institutions. OPEC Energy Review, 39(2), 222–246. https://doi.org/10.1111/opec.12050

Nusair, S. a. (2016). The effects of oil price shocks on the economies of the Gulf Co-operation Council countries: Nonlinear analysis. Energy Policy, 91, 256–267. https://doi.org/10.1016/j.enpol.2016.01.013

Oludiran, S., Akinleye, S. O., & Ekpo, S. (2013). Oil Price Shocks and Macroeconomic Performance in Nigeria. Economia Mexicana, (II), 565–624.

Opec. (2015). OPEC Annual Statistical Bulletin, 108. Retrieved from www.opec.org

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616

Pesaran, M. H., Shin, Y., & Smith, R. J. (1999). Bounds testing approaches to the analysis of long run relationships. Journal of Applied Econometric, 16, 289–326.

Pierce, J. L., & and Enzler, J. (1974). The Effects of External Inflationary Shocks. The Effects of External Inflationary Shcoks, 1974(1), 13. https://doi.org/10.2307/2534072

Rasche, R. H., & Tatom, J. A. (1977). The effects of the new energy regime on economic capacity, production, and prices. Federal Reserve Bank of St. Louis Review, 59(4), 2-12.

Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt (pp. 281-314). Springer, New York, NY..

Styan, D. (2006). France and Iraq: oil, arms and French policy making in the Middle East. IB Tauris.

ThankGod, A. O., & Maxwell, I. a. (2013). Macroeconomic Impact of Oil Price Levels and Volatility in Nigeria. International Journal of Academic Research in Economics and Management Sciences, 2(4), 15–25. https://doi.org/10.6007/IJAREMS/v2-i4/48

Yazdan, G. F., Ehsan, A. G., & Hossein, S. S. M. (2012). Is Cointegration between Oil Price and Economic Growth? Case Study Iran. Procedia - Social and Behavioral Sciences, 62, 1215–1219. https://doi.org/10.1016/j.sbspro.2012.09.207

Zivot, E., & Andrews, D. W. K. (1992). Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis. Journal of Business & Economic Statistics, 10(3), 251–270. https://doi.org/10.1198/073500102753410372