AI Article Synopsis
- Some studies look at how oil money affects a country’s income in a simple way, but they don’t consider changes over time.
- This study uses a special model to see how oil dependence impacts Malaysia's manufacturing industry at different times.
- The results show that too much oil money can be bad for manufacturing, especially after a certain limit, and these effects are related to big events like financial crises.
Article Abstract
Previous "oil curse" studies primarily estimate a single, linear effect of oil rents on income using time-invariant parameters over entire sample periods. This means the true effects of oil dependence cannot be captured if structural changes are taking place, or effects are non-linear. We introduce a two regime Markov-switching model into the resource effects literature to assess the time-varying effects of oil rent dependence on the Malaysian manufacturing sector. We also allow for non-linear threshold effects. We find the impact of oil rents is regime-dependent. Under a rarer "first regime" structure, there is no significant effect. Under a predominant "second regime," there is an inverted U-shaped effect, with oil rents' share of GDP up to 8% positively associated with manufacturing, and negatively associated beyond this. We find connections between regime changes and the 1997 Asian financial crisis and 2008 global financial crisis. Implications for effective diversification policies are discussed.
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| http://dx.doi.org/10.1007/s11356-022-25045-7 | DOI Listing |
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