Long-term relationship between oil revenue and government expenditure in the GCC countries

This paper uses the Engle-Granger method of co-integration and the Johansen-Juselius maximum-likelihood technique of co-integration to test the long-term relationship between government expenditure (for both consumption and investment purposes) and oil exports in the oil-producing members of the GCC. The regression results suggest that, using the Engle-Granger method, the null hypothesis of no cointegration could only be rejected in the case of Oman. However, the Johansen technique suggests the existence of a unique co-integrating vector, and hence long-term relationship between the two variables in Oman, Saudi Arabia and the United Arab Emirates. There is no evidence of a long-term relationship between government expenditure and oil exports in the case of Kuwait. Copyright (C) 2000 John Wiley & Sons, Ltd.