The Arab region that includes the six Gulf Cooperation Council economies (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) and more populous countries like Algeria and Sudan have often had their economic performance buffeted by oil price volatility, so the book draws policy recommendations on how they can best exploit their resources to avoid such a curse.
The book, entitled Institutions and Macroeconomic Policies in Resource-Rich Arab Economies, argues that weak institutions (including political institutions) rather than commodity price volatility best explain the often ineffective macroeconomic policies in oil-producing countries that have produced disappointing outcomes regarding inflation, growth and diversification.
“The quality of institutions governing macroeconomic policy (including political, fiscal and monetary institutions) matters more than the abundance of oil and gas revenues for macroeconomic policies and outcomes, including long-run growth and stability, in oil exporters,” says the book, adding that this is especially important given the decline in oil prices since 2014 “which many believe is the new normal”.
The 464-page book is published by Oxford University Press, and there will be a book launch and panel discussion at King’s College, Cambridge on 5 November.
The book is edited by Kamiar Mohaddes, University Senior Lecturer in Economics & Policy at Cambridge Judge Business School, Jeffrey B. Nugent, Professor of Economics at the University of Southern California, and Hoda Selim, economist at the International Monetary Fund. It includes contributions from 13 authors including the three editors on topics ranging from reforming fiscal institutions to the effective use of oil revenues.
The book seeks to fill “an enormous research gap” about the Arab world that is puzzling given that the region’s oil and gas reserves account for more than half the global total.
“There really has been a dearth of academic and other research attention paid to the economic issues in the Arab region, which is really surprising given that there’s a more than 80-year history of how oil and gas have affected the region’s economic, fiscal and export structures,” says Kamiar. “We hope the wide variety of studies included in the book will address this, while reflecting the fact that there is no one-size-fits-all model with regard to policy reforms in the Arab world.”
Among other findings and suggestions, the book states that regime stability has been such a priority that oil price volatility and external political shocks can prompt the region’s governments to display “extremely procyclical spending” that is not adjusted downward when prices fall. One chapter suggests a novel countercyclical policy proposal that would tie the fixed exchange rate of Gulf Cooperation Countries to a broad “currency-plus commodity basket” that includes the dollar, euro and the oil price.
Another section of the book confirms earlier research that found inefficient spending patterns of oil-rich countries, arguing that this reflects the fact that “oil revenues go directly to the government without passing through the hands of the citizens. Without citizen knowledge or scrutiny over oil revenues, governments have greater leeway in spending, often resulting in waste and fraud.”
The book grew out of Economic Research Forum research projects supported by the World Bank and the Arab Fund for Economic and Social Development.