The long‐run relationship between savings and investment in oil‐exporting developing countries: a case study of theGulfArab states

Abstract

The relationship between national saving and investment over the long term is examined for six Gulf Arab oil-exporting developing countries -Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. We show that, provided some large outliers are properly accounted for, long-run equilibrium relationships between saving and investment (both total and fixed) exist in these countries. Since these countries have typically large current account surpluses such relationships cannot be explained by standard arguments.Our hypothesis is that the response of investment to saving largely depends on domestic absorptive capacity.JEL Codes: C32; E21; E22; H54; O16

Current accounts and oil price fluctuations in oil-exporting countries: The role of financial development

“…The threshold value also decreases from 25% to 9%, meaning that the current account effect of oil price variation is positive for oil-exporting countries characterized by a degree of financial development below 9%. These findings support the dominant role played by the official sector in both petrodollar recycling and its significant bearing on saving and investment choices (Higgins et al, 2006;Basher and Fachin 2011). As a result, taking into account the fiscal balance in the analysis tends to weaken the relationship between the level of financial development and the current account.…”

“…If the fiscal balance to GDP ratio is a standard current account determinant 25 , it may have a profound impact on the adjustment patterns of current accounts in oil-exporting countries because of the larger role played by the government which typically exclusively holds oil export revenues (Basher and Fachin 2011;Arezki and Hasanov, 2013). Moreover, the role played by the State in the allocation between savings and investment in those countries can also sharply differ from that of private sector's preferences (Basher and Fachin, 2011).…”

“…Moreover, the role played by the State in the allocation between savings and investment in those countries can also sharply differ from that of private sector's preferences (Basher and Fachin, 2011). 26 In 25 See Debelle and Faruquee (1996) for a survey.…”

The Impact of Oil-Market Shocks on Stock Returns in Major Oil-Exporting Countries: A Markov Switching Approach

“…The remaining variables in Table 1 are the monthly excess returns of stock markets including the world stock market. Not surprisingly, the average monthly returns of the three Middle Eastern markets are negative, partly because the available samples for these markets coincide with two large stock market crashes in 2006 and 2008, and partly due to the limited absorptive capacity of these economies beyond the oil sector (Basher and Fachin, 2013). The standard deviations of stock returns always exceed their mean levels, implying extremely high volatility of returns in national and world stock markets.…”

The impact of oil revenues on theIranian economy and theGulf states

“…Private investment is often constrained by low domestic savings, and oil incomes can overcome this restriction. In fact, Basher and Fachin () reported a long‐run relation between savings and investment for the Gulf Cooperation Council (GCC) countries. Higher oil incomes cause savings to increase and subsequently investment and capital accumulation, since the revenues are partially spend to modernise the domestic economy.…”