Essays in the Gulf Cooperation Council economies and market dynamics

Khan, Caroline and Izzeldin, Marwan and Spiru, Alina and Peel, David (2017) Essays in the Gulf Cooperation Council economies and market dynamics. PhD thesis, Lancaster University.

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Countries rich in natural resources may be deemed to have an economic advantage with regards to their economic growth. However, this has been questioned as such countries have been found to underperform those that are significantly disadvantaged in terms of such resources, leading to what has been termed as the resource curse. The current thesis aims to investigate the existence of resource curse for the oil abundant GCC countries as well as the remaining OPEC members that share similar characteristics; most notably the dependence on oil exports. Oil has a prominent status among all commodities as it acts as a barometer to a country's, and perhaps the world's, economic outlook. High oil prices may fuel inflation pressure, thereby increasing the cost of production of many goods. As such we also investigate the impact of oil on the GCC stock markets. Specifically, we investigate whether the oil dynamics have acted as a contagion transmission channel, which would have imported the uncertainty pertaining to the Global Financial Crisis from the western economies to the, admittedly secluded, GCC stock markets. The first chapter of the thesis lays out key background information related to the economic and financial environment of the GCC economies, necessary to fully comprehend the complexities that over-reliance on a particular resource can generate. The second chapter focuses on the economic impact of oil by offering an investigation as to whether the resource curse is observed for the GCC and other OPEC members. A system-GMM method is adopted to account for any omitted variable bias and endogeneity issues. Furthermore, classification trees are used to divide the countries based on their oil level and re-consider the association between oil and per capita GDP by accounting for the country differences in terms of the per capita oil reserve and oil rent, the two oil proxies used. The third chapter examines the role of oil in the financial sector of the GCC and OPEC markets. In particular, we rely on the well-established and relevant given the Global Financial Crisis, framework of financial contagion to investigate: i) how affected were the GCC stock markets; ii) what has been the role of oil in the transmission of the financial shocks. We use an asymmetric multivariate GARCH framework which allows for dynamic properties of correlations across the financial markets. Our results suggest that GCC markets were affected by financial contagion, while the oil has been an important transmission channel of varying intensity during the phases of the crisis. The UAE, which have the largest and most progressive financial sector in the region, have been the most affected, while Kuwait has been the least. A fourth chapter provides critical reflections and discussion around the results. In particular, it highlights the steps that, particularly the GCC governments have taken to ensure that their resource abundance is not a curse over the past couple of years. Most importantly, the GCC governments have been diversifying their income streams into tourism, manufacturing, real estate and financial services. The impact of oil on the GCC financial sector is of particular importance as financial services are one of the main business lines that the local governments have been investing and promoting in their attempt to diversify their income generating process away from oil and gas. A fifth chapter concludes. Keywords: Resource Curse, GMM, GCC, Financial Contagion, Oil, GARCH JEL Classification: C53; C32; C14; C15; G12; C5; G1; Q

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Thesis (PhD)
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10 May 2017 08:12
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02 Apr 2024 00:59