A VECM Investigation on the Nexus among Government Spending, Oil Revenues, and Economic Growth: Empirical Evidence from the Sultanate of Oman

Abstract

This study aims to examine the impact of oil resources on the economic growth and government spending in Oman between 1989 and 2018. To enhance economic growth, it is crucial to comprehend how Oman can effectively manage its abundant resources. The objectives are to examine the correlation between oil resources, GDP, and government expenditure; to assess the interconnections that exist in both the short and long run; and to identify the causal pathways using the ARDL and VECM models. The approach involves doing unit root tests and examining long-term associations, followed by using VECM to analyze short-term dynamics. Finally, the analysis is performed on annual data obtained from the World Bank and the National Centre for Statistics and Information. The results indicate that a rise in oil revenue has a significant impact on GDP, whereas an increase in government expenditure has an adverse effect on economic growth. The findings of this research align with those of studies undertaken in other GCC states, emphasizing the significant role of oil in both economic development and public finance. An result of this research is that it will equip policymakers in Oman and other nations abundant in resources with empirical information that can be used to formulate policies for sustainable economic growth and effective resource management.