Abstract
A dilemma faced by oil exporting countries is the relative efficiency of the traditional OPEC cartel policy of setting quotas to target a certain crude oil price level versus the policy usually followed by non-OPEC countries of choosing the crude oil output level that maximizes profits, taking the oil price level as given. This paper contributes to the oil and macroeconomics literature by using panel cointegration techniques that consider cross-sectional dependence and structural breaks to study the relative efficiency of these policies to promote economic growth in oil exporting countries.
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Notes
The literature suggests a link between oil prices and dollar exchange rates that may also be important for oil consumption and production decisions (see Beckmann and Czudaj 2013; Yousefi and Wirjanto 2004; Reboredo 2012). However, this literature mostly studies nominal oil prices, while we consider only real oil prices and that is why we do not include the exchange rate in the paper. This choice may also be based solely on the fact that our goal is to study real GDP growth and not the co-movement of prices.
Specifically, Pesaran (2004) estimates common sample correlations of the estimated residuals \( \hat{\rho }_{ij} \) and estimate a sample cross-correlation coefficient \( {\text{CD}} = \sqrt {\frac{2}{{N\left( {N - 1} \right)}}} \left( {\mathop \sum \nolimits_{i = 1}^{N - 1} \mathop \sum \nolimits_{j = i + 1}^{N} \sqrt {T_{ij} } \hat{\rho }_{ij} } \right) \). For details, go to Pesaran (2004, p. 17).
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Kozlova, O., Noguera-Santaella, J. Relative efficiency of oil price versus oil output in promoting economic growth: Is OPEC’s strategy right?. Empir Econ 57, 1997–2012 (2019). https://doi.org/10.1007/s00181-018-1537-1
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DOI: https://doi.org/10.1007/s00181-018-1537-1