New book co-edited by Dr Kamiar Mohaddes of Cambridge Judge Business School says stronger institutions can help oil-rich Arab countries avoid the ‘resource curse’.
A new book co-edited by Kamiar Mohaddes
of Cambridge Judge Business School addresses how Arab countries can escape a “resource
curse” in which oil and gas riches don’t translate into long-term economic
growth and stability.
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
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
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.