Topics in Middle Eastern and North African Economies

Financial Liquidity, Geopolitics, and Oil Prices

Document Type

Article

Publication Date

11-2018

Abstract

This paper aims simultaneously to study the global dynamic relationship of oil prices, financial liquidity, and geopolitical risk, on the one hand, and the economic performance of oil-dependent economies on the other. Global and country-specific dynamics are studied together in a Global Vector Autoregression (GVAR) model that allows different lag structures for different variables in different countries. Impulse response functions from the estimated model suggest that new waves of high oil prices are unlikely, despite the likely continuation of high global financial liquidity and heightened geopolitical risk, which had driven earlier episodes of very high oil prices. With oil remaining at modest to low prices by recent historical standards, we study the prospects for economic growth in oil-dependent economies through dramatic increases in domestic investment, as planned under Visions 2030 of a number of Arab economies, and conclude that success is unlikely.

Journal Title

Economic Research Forum

Publisher

Economic Research Forum

Comments

This is also listed in Topics in Middle Eastern and North African Economies Volume 21, Number 2, September 2019.

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