The Impact of Oil Price Shocks on the Military Expenditure of Selected MENA Oil Exporting Countries: Symmetric and Asymmetric Cointegration Analysis

Authors

1 Department of Management Technique, Technical College of Administration (TCA)-Sulaimani Polytechnic University, Kurdistan Region of Iraq, Iraq

2 School of Business and Economics, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia

3 Center for Advanced Research (CARe), Universiti Brunei Darussalam, Jalan Tungku Link, Gadong BE1410, Brunei Darussalam, Brunei

4 Department of Economics, College of Administration and Economics, University of Sulaimani, Kurdistan Region of Iraq, Iraq

Abstract

This paper examines the symmetric and asymmetric effects of oil prices on military expenditure of selected the Middle East and North Africa (MENA) oil-exporting countries. Using Linear Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) frameworks on annual data covers from 1960 to 2014, this paper documents that oil prices and the military expenditure shares a stable long-run relationship in all cases except Algeria. The ARDL empirical findings reveal that oil price has a positive and significant effect on military spending in all cases except Tunisia. The NARDL results further reveal the existence of asymmetric pieces of evidence that the increase in oil prices increases military spending while the decrease in oil prices reduces the military spending in the long-run for Saudi Arabia, Iran, Algeria, Kuwait, and Oman. In the short run, the results demonstrate the existence of asymmetry effect of oil price on military spending only for Iran.

Keywords

References

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.
Al-Mawali, N. (2015). Do Natural Resources of Rentier States Promote Military Expenditures ? Evidence from GCC Countries. Journal of Economic & Financial Studies, 3(3), 49-53.
Ali, H. E., & Abdellatif, O. A. (2013). Military Expenditures and Natural Resources : Evidence from Rentier States in the Middle East and North Africa. Defence and Peace Economics, 26(1), 5-13.
Apergis, N., Aslan, , Aye, G. C., & Gupta, R. (2015). The Asymmetric Effect of Oil Price on Growth across US States. Energy Exploration and Exploitation, 33(4), 575–590.
Arezki, B. R., & Blanchard, O. (2014). Seven Questions about the Recent Oil Price Slump. IMF, Retrievd from https://blogs.imf.org/2014/12/22/seven-questions-about-the-recent-oil-price-slump/
Azam, J. P. (1995). How to Pay for the Peace? A Theoretical Framework with References to African Countries. Public Choice, 83(1-2), 173-184.
Bannon, I., & Collier, P. (2003). Natural Resources and Conflict : What We Can Do. Washington, DC: World Bank Publications.
Barakat, B., & Urdal, H. (2009). Breaking the Waves? Does Education Mediate the Relationship between Youth Bulges and Political Violence? World Bank Policy Research Working Paper, 5114, Retrievd from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1503808
Basedau, M., & Lay, J. (2009). Resource Curse or Rentier Peace ? The Ambiguous Effects of Oil Wealth and Oil Dependence on Violent Conflict. Journal of Peace Research, 46(6), 757–776.
Beblawi, H. (1987). The Rentier State in the Arab World. Arab Studies Quarterly, 9(4), 383–398.
Bodea, C., Higashijima, M., & Singh, R. J. (2016). Oil and Civil Conflict: Can Public Spending have a Mitigation Effect? World Development, 78, 1-12.
Collier, B. P., & Hoefflert, A. (2004). Greed and Grievance in Civil War. Oxford Economic Papers, 56(4), 563–595.
Eltony, M. N., & Al-Awadi, M. (2001). Oil Price Fluctuations and their Impact on the Macroeconomic Variables of Kuwait: A Case Study Using a VAR Model. International Journal of Energy Research, 25(11), 939–959.
Emami, K., & Adibpour, M. (2012). Oil Income Shocks and Eonomic Growth in Iran. Economic Modelling, 29(5), 1774–1779.
Farzanegan, M. R. (2011). Oil Revenue Shocks and Government Spending Behavior in Iran. Energy Economics, 33(6), 1055–1069.
Fjelde, H. (2009). Buying Peace? Oil Wealth, Corruption and Civil War, 1985-99. Journal of Peace Research, 46(2), 199-218.
Fjelde, H., & De Soysa, I. (2009). Coercion, Co-optation, or Cooperation? State Capacity and the Risk of Civil War, 1961-2004. Conflict Management and Peace Science, 26(1), 5-25.
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.
Hamilton, J. D. (1988). Are the Macroeconomic Effects of Oil-Price Changes Symmetric? (I), the Theory. Carnegie-Rochester Conference Series on Public Policy, 28, 369–378.
---------- (1983). Oil and the Macroeconomy since World War II. Journal of Political Economy, 91(2), 228.
Henderson, E. A., & Singer, J. D. (2000). Civil War in the Post-colonial World, 1946-92. Journal of Peace Research, 37(3), 275-299.
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.
Hou, Z., Keane, J., Kennan, J., & Willem, D. (2015). The Oil Price Shock of 2014. Working Paper, Overseas Development Institute, Retrievd from https://cdn.odi.org/media/documents/9589.pdf
Ibrahim, M. H. (2015). Oil and Food Prices in Malaysia: a Nonlinear ARDL Analysis. Agricultural and Food Economics, Retrieved from https://agrifoodecon.springeropen.com/articles/10.1186/s40100-014-0020-3
Institute for Economics and Peace. (2017). Global Peace Index. Retrievd from https://www.economicsandpeace.org/
Iwayemi, A., & Fowowe, B. (2011). Impact of Oil Price Shocks on Selected Macroeconomic Variables in Nigeria. Energy Policy, 39(2), 603–612.
Jbir, R., & Zouari-Ghorbel, S. (2011). Oil Price and Dutch Disease: The Case of Algeria. Energy Sources, Part B: Economics, Planning, and Policy, 6(3), 280–293.
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.
Kiseok Lee, Shawn Ni, A., & Ratti, R. A. (1995). Oil Shocks and the Macroeconomy: The Role of Price Variability. The Energy Journal, 16(4), 39-56.
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.
Lardic, S., & Mignon, V. (2008). Oil Prices and Economic Activity: An Asymmetric Cointegration Approach. Energy Economics, 30(3), 847–855.
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.
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.
Mork, K. A. (1989). Oil and the Macroeconomy When Prices Go Up and Down: an Extension of Hamilton's Results. Journal of Political Economy1989, 97(3), 740-744.
Mork, K. A., & Hall, R. E. (1980). Energy Prices, Inflation, and Recession, 1974-1975. The Enerhy Journal, 1(3), 31-63.
Mory, J. F. (1993). Oil Prices and Economic Activity : Is the Relationship Symmetric? The Energy Journal, 14(4), 151-161.
Moshiri, S. (2015). Asymmetric Effects of Oil Price Shocks in Oil-exporting Countries: the Role of Institutions. OPEC Energy Review, 39(2), 222–246.
Musayev, V. (2015). Externalities in Military Spending and Growth: The Role of Natural Resources as a Channel through Conflict. Defence and Peace Economics, 27(3), 378–391.
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.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis. Journal of Applied Econometrics, 16(2001), 289–326.
Pesaran, M. H., & Shin, Y. (1998). An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. Econometric Society Monographs, 3, 371–413.
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.
Rasche, R. H., & Tatom, J. A. (1977). The Effects of the New Energy Regime on Economic Capacity, Production, and Prices. Retrievd from https://econpapers.repec.org/article/fipfedlrv/y_3a1977_3ai_3amay_3ap_3a2-12_3an_3av.59no.5.htm
Ross, M. L. (2004a). How Do Natural Resources Influence Civil War ? Evidence from Thirteen Cases. International Organization, 58(1), 35-67.
---------- (2004b). What Do We Know about Natural Resources and Civil War? Journal of Peace Research, 41(3), 337–356.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. New York: Springer.
Strüver, G. T. (2016). The Hard Power of Natural Resources : Oil and the Outbreak of Militarized Interstate. Foreign Policy Analysis, 14(1), 86–106.
Thyne, C. L. (2006). ABC's, 123's, and the Golden Rule: The Pacifying Effect of Education on Civil War, 1980–1999. International Studies Quarterly, 50(4), 733-754.
Varisco, A. E. (2010). A Study on the Inter-Relation between Armed Conflict and Natural Resources and its Implications for Conflict Resolution and Peacebuilding. Journal of Peace, Conflict and Development, 15(1), 38–58.
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.
Iranian Economic Review
Volume 25, Issue 2
June 2021
Pages 219-235

Files

Share

How to cite

Statistics