Do Country Size and Trade Openness Affect OPEC's Volatility?

Abstract

The volatility in the global macroeconomic performance has been a striking feature that absorbs recently more attention. Against many influential factors, the role of openness and country size became a prominent debatable issue in explaining economic volatility in the literature. In this paper, we aim at investigating the mechanisms through which output volatility is affected by trade openness and country size, also, introducing those factors that matter most for explaining growth volatility. By using a panel dataset of OPEC during the period of 1970-2012 and employing GLS technique, the main results are threefold. First, trade openness leads the OPEC members to experience more volatility in economic growth. Second, more fluctuation is accompanied with smaller country size. Third, during the period of inspection, government expenditure and democracy are correlated to less volatility in OPEC.

Keywords: Volatility, Country size, Openness, OPEC