Do the Gulf Oil-Producing Countries Influence Regional Growth? T+L3886he Impact of Financial and Remittance Flows

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.This paper tests the association between the Gulf Cooperation Council (GCC) countries' financial and remittance outflows and regional growth in the Middle East. The findings, based on 35-year panel data, indicate that growth rates of real GDP, private consumption and private investment in regional countries are strongly associated with remittance outflows from and the accumulation of financial surpluses in the GCC. Unlike in other developing and emerging market countries, growth in regional countries is not influenced by growth in the North, and is not export led. Linkages with the GCC could help sustain output growth in the regional countries in the face of the global economic slowdown and oil price shocks and could provide diversification gains to international capital seeking markets uncorrelated with Northern and emerging market countries.

How Russia Affects the Neighborhood: Trade, Financial, and Remittance Channels

“…The existing empirical evidence does not strongly support the view that remittances spur investment and growth (Chami and others, 2008;Lucas, 2005); however, to the extent that migrant remittances result in consumption booms in receiving countries (Taylor and others, 1996) they may explain growth spurts (Ilahi and Shendy, 2008 Table 1. 7 The value of the ADF t-test is less than the 5 percent critical value (reported in parentheses) suggesting that the null hypothesis of an extra unit root is rejected for all the variables.…”

“…The specification closely follows that in Ilahi and Shendy (2008). The estimation controls for the impact of "non-Russia" factors, captured here by equivalent variables for Europe or OECD.…”

“…To the extent that linkages may be captured by more than equity market effects, we conduct a more general test. Given the lack of data on direct bilateral financial flows, we employ, using the approach in Ilahi and Shendy (2008), Russia's current account balance-an indicator of the national savings that are available for investment abroad-expressed as a ratio of the combined GDPs of the CIS economies (excluding Russia) as a proxy that show the relative "financial" muscle of Russia. As Russia's external grants abroad are excluded from the calculation of its current account, by definition, but capture one form of financial flow, we also use an alternative current account variable where grants made abroad by Russia are added back into the current account balance.…”

“…The panel approach in this paper closely follows that used in Ilahi and Shendy (2008). Indeed in terms of linkages with a large oil producing economy, the CIS countries' links with Russia closely resemble those between the non-GCC Middle East and North African countries (including Pakistan) and the GCC.…”

“…• Ilahi and Shendy (2008) find growth rates of real GDP, private consumption and private investment in Middle East and North African countries (including Pakistan) are strongly associated with remittance outflows from, and the accumulation of financial surpluses in the oil-driven Gulf Cooperation Council (GCC) countries. This suggests strong labor and financial channels of spillover from GCC to regional countries.…”