Economic Growth in OPEC Member States: Oil Export Earnings Versus Non- Oil Export Earnings

Abstract

The study looked at the economic growth measured by the Gross Domestic Product in current market prices of OPEC member states and the attendant contributions of oil export earnings and non-oil export earnings. The statement of research problem was the difficult of coping with oil price volatility among OPEC member nations especially in the light of challenging realities in growing research into alternative energy options, policy disagreements among OPEC states, and over dependence on oil by these OPEC members. The literature reviewed contained the conceptual framework, theoretical framework and empirical framework. The methodology of study adopted regression approach using E-views. Stata statistical program was utilized in the summary of statistics on tables 1 to 13. The Least Squares Dummy Variable Corrected (LSDVC) model was a useful model applied in this research to correct bias having heterogeneity among subjects which allowed each entity to have its own intercept value. Graphical illustrations for each variable for the OPEC states was shown using Excel. The findings indicated that the GDP at market prices, current account balances, oil- export earnings and non-oil export earnings varied from country to country. Countries like Saudi Arabia, Iran and Nigeria showed the highest potential for economic growth than Gabon, Ecuador and Libya. In current account balances Saudi Arabia, UAE and Qatar were among the countries with the highest potentials which indicates their ability to trade and a robust balance means that their currency will be stronger than those whose balance were in deficit like Venezuela, Gabon and Algeria. In the oil and non-oil exports category Saudi Arabia and United Arab Emirate showed oil export earning capacity and non – oil export capacity respectively. Countries like Gabon and Libya reported lower earnings for the period but Iraq had the least earnings from non-oil export earnings thereby demonstrating the lowest drive towards diversification away from oil. In conclusion, it is evident from the e-view analysis that the oil exports earned in the five year period under consideration has a high impact in economic growth than the non-oil exports earned. This means that generally oil producing exporting countries rely more on oil income to replenish their reserves and grow their economy. It is highly recommended that OPEC countries should foster more inclusive growth by growing their private sector to drive their economy. The non-oil private sector in many of these countries remains relative small contributor to the GDP. Countries such as Algeria, Venezuela, Libya and Ecuador with the lowest current account balances among OPEC countries should source for ways to grow their foreign exchange reserves. This can only be achieved by very appropriate measures of debt management and reduction in government expenditure and increased earnings from exports. According to Amah and Onoh (2013) countries that liberalized their oil sector fare better in growing their current account balances. A stronger current account indicates stronger foreign exchange ability for the country concerned. Over-reliance on oil also exacerbates macroeconomic volatility, and for OPEC countries like Gabon, Ecuador and Libya having the lowest earnings from oil exports and of course being subject to OPEC quota realize that they don’t wield enormous influence in decisions taken at OPEC the way Saudi Arabia would because of the wide gap in oil earnings capacity. There is the need to insulate their individual economies from the impact of oil price volatility by laying a sound foundation for economic diversification. Not diversifying the economy away from oil is dangerous given that in addition to being an exhaustible resource, oil has a volatile price pattern.

Keywords: China insurance industry, Foreign fund, Challenge