Evaluating the Effects of Resource-Based Shocks on Key Macroeconomic Indicators in Selected Opec Nations

Abstract

This study looks at how natural resources affect important macro-economic indicators like inflation and exchange rates in OPEC countries. We used data from 10 OPEC countries over 1990-2023. The research used Panel Vector Autoregression (PVAR) method to examine how changes in one economic area affect others. Our results show that natural resource rents had an average of 31.09% of national income, while oil rents made up 50.37% on average. Oil production was very high at 1,379.52 terawatt-hours on average. However, inflation constituted a macroeconomic challenge with an average of 113.57% and some extreme cases reaching 23,773.13%. The exchange rate also changed a lot with an average value of 89.24. The study revealed that inflation shocks were the most detrimental to overall macroeconomic stability. When there is a sudden rise in inflation, the exchange rate drops by -81.88, natural resource rents fall by -174.98, and oil production decreases by -14,864. This shows that controlling inflation is very important for OPEC countries. The forecast error variance decomposition shows that oil production explains 28% of inflation changes in the short term. Oil rents become more important for exchange rates over time, growing from 22.8% in the short term to 52.4% in the long term. Natural resource rents are mostly affected by oil production, which explains 46.1% to 55.7% of the changes. The findings highlight the need for OPEC countries to prioritize inflation control and adopt a more strategic approach to managing oil wealth. Different resource sectors sometimes compete with each other, so countries need better coordination between different resource policies.