Asymmetric Effects of Oil Price Shocks on Economic Growth of Oil-Exporting Countries

Oil price shocks affect macroeconomic performance in both oil-importing and oil-exporting countries. The recent research on the oil-macroeconomy relationship in the oil-importing countries shows that oil price shocks have asymmetric effects on their economic growth; the adverse effects of higher oil prices are larger than the stimulating effects of lower prices. The effects of oil price shocks on economic performance and their transmission mechanism in oil-exporting countries are different than those in oil-importing countries. In this study, we examine the oil-macroeconomy nexus in the context of oil-exporting developing countries. We set up a VAR model with a GARCH-type oil price shocks to estimate and test the asymmetric effects of oil shocks in six major oil exporting members of OPEC for the period 1970-2009. The model includes oil price shocks and economic growth as two major variables of interest as well as the intermediate variables such as investment, exchange rate, and inflation rate. We find that in oil exporting developing countries, lower oil prices would lead to major revenue cuts and stagnation in the economy. However, higher oil prices and accompanying higher revenues do not translate to a sustained economic growth.