This thesis investigates the relationship between oil revenue and macroeconomic policies and performance in Oman. The thesis contains five empirical chapters along with introduction, literature review and conclusion. The first empirical chapter looks into the dynamic relationship between oil revenue, government spending and economic activities. The results indicate oil revenue has immediate and significant impact on both the country s GDP and the government expenditure. The government expenditure also has significant impact on the GDP.
The second empirical chapter examines the validity of the Wagner s Law and the Keynesian hypothesis in regards to the relationship between the government spending and economic performance. The chapter uses both aggregated and disaggregated government expenditure where the data are divided into recurrent and capital investment. The findings show that there is a long run-relationship between the government spending and the GDP for the period covered. The causality analysis suggests that public investment causes economic growth, but the recurrent expenditure is insignificant.
The third empirical chapter investigates the impact of government spending on economic performance where the government spending was decomposed into health, education and militaryexpenditure. The results of these components of the government expenditure and along with an index of openness have long-run relationship with GDP. The short-run coefficient on military spending is insignificant and that of health is negative and significant. However, the long-run coefficients are all positive and significant, except that of military.
The fourth empirical chapter analyses the relationship between government expenditure and oil revenue in Oman. The disaggregated government expenditure of health, education and military are used for the analysis in order to see the response of each component to oil revenue changes. The results show that, although all the components responded positively to a positive oils revenue shock, it is the military component that has recorded highest response with more persistence.
The fifth chapter investigates the relationship between the current account and the fiscal deficits in Oman. The chapter uses a threshold cointegration technique that is capable of capturing non-linearity and asymmetric adjustment between the series. The estimated results show that there is a long-run relationship between the current account and fiscal deficits in Oman and that adjustment between the series is asymmetric. It is found that upward adjustment is much faster than downward adjustment.
A Doctoral Thesis. Submitted in partial fulfilment of the requirements for the award of Doctor of Philosophy of Loughborough University.