Revue du Journal arabe des affaires et de la gestion

Impact of Oil Prices and GDP on National Expenditure in the GCC Countries: ARDL Technique for Co-integration

Abstract

Mahmoud Mourad and Ali Hadadah

The conducted research is of great importance for GCC countries as it focuses on the annual rates of change for the gross national expenditure, the gross domestic product (GDP), and oil prices (dollars per barrel). These three variables are linked by a long-term equilibrium relationship in both Saudi Arabia and Qatar, no for the other countries, using the appropriate technique (ARDL/Bounds Testing methodology). The error correction model (ECM) showed the availability of high speed of adjustment to modify the deviation and return to equilibrium after a certain shock in the relevant chains. In the long term, a decrease of 1 unit in the annual growth of oil barrel prices will lead to an increase in the annual growth of the national expenditure by (0.195) units in Saudi Arabia and (0.46) units in Qatar. For the rest of the GCC countries, we were able to model the relationship between the three variables through the traditional form of the ARDL model. Our results show that the flexibility of the national expenditure in the short term, according to an increase of 1 unit in the annual growth of oil barrel prices, will be negative in both Oman and Bahrain, by -0.373 and -0.198 units respectively, and positive in Kuwait (0.162) unit. In the UAE, there is no direct impact of the annual growth of barrel oil prices, but it is lagged two years. An annual increase of 1 unit in the GDP will have a positive impact on the gross national expenditure in all GCC countries, as is the case in both Saudi Arabia and Qatar and through the long-run equilibrium equation, 1.102 and 1.1225 units respectively. While, in the short term, it will be 0.762 in the UAE, 1.05 in Oman, and 1.133 units in Bahrain. In Kuwait, there is no direct effect of the GDP annual increase, but it is lagged one year. Also, we were able to calculate the multiplier, in the long term, for an increase in each of the annual GDP growth and the oil barrel prices, in the United Arab Emirates, Oman, Kuwait and Bahrain.