OIL PRICES and ECONOMIC ACTIVITY: The Case for Algeria, Iran,Kuwait, Saudi Arabia, United Arab Emirates

The Middle East and North Africa (MENA) region has experienced exceptional growth over the last two years. The economic growth was more than 5.5 percent on the average in 2006 and in 2007. However 97 percent of the regional growth was driven by Saudi Arabia, The Islamic Republic of Iran, Algeria and the United Arab Emirates. This strong growth performance could be explained by the rise in oil prices over 2003-2007. The rise in oil prices has primarily impacted MENA oil exporters but effects have spread throughout the MENA region .A number of non-oil economies of MENA benefited from three sources. First they received greater remittances from increased incomes of the labor force working in the major oil producers. Second, they received greater capital and tourism flows a result of increased incomes from citizens in oil producing economies. Finally they took in flows of bilateral and multilateral aid from OPEC and Arab institutions. Moreover intra –regional investment flows served to spread the growth impetus in the whole region. The aim of this paper is to study the long-term relationship between oil prices and economic activity for five oil exporting countries. Algeria, Iran Islamic Republic, Kuwait, Saudi Arabia and United Arab Emirates. The linear cointegration is used to test the long-term relationship between oil price and GDP growth.