Essays in the Gulf Cooperation Council economies and market dynamics
Creators: name: Khan, Caroline
Publisher: name: Lancaster University
Year: 2017
Subjects: Resource Curse
GMM
GCC
financial contagion
Oil
GARCH
CART
OPEC
C53
C32
C14
C15
G12
C5
G1
Q

description: 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