The dynamic impact among oil dependence volatility, the quality of political institutions, and government spending

Azadeh Pazouki, Xiaoxian Zhu

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Abstract

This paper empirically examines the direct and indirect effect of the role of democracy, and, in turn, the effect of oil dependence volatility on governmental expenditure in oil exporting countries. To achieve this aim, we apply a panel Vector Auto-Regressive (PVAR) model along with panel impulse response functions from the period 1983 to 2016. The findings show that the quality of political institutions, it is observed that in democratic countries an increase in oil volatility leads to an increase in government expenditure. In contrast, in non-democratic countries, governments respond to oil volatility fluctuating between the positive and negative depending on the quality of political institutions; the more some attributes of democracy are seen, the greater the expenditure. This difference in response between them can be attributed to a variation in institutional quality. Therefore, an improvement in strategic risk planning together with greater government transparency could lead to institutional quality improvement.

Original languageEnglish
Article number106383
Number of pages26
JournalEnergy Economics
Volume115
Early online date20 Oct 2022
DOIs
Publication statusPublished - 2 Nov 2022

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