Oil Volatility, Economic Growth and Diversification -Alternative Explanation of The Oil Curse In Algeria-

Abstract

The problem of oil price volatility has always worked as a buffer against the good performance of oil rich economies. This problem is associated with economic diversification, indeed, countries whose exports and domestic sectors are more concentrated are more likely to experience volatility in their revenues and output; and countries with diversified economies could reduce the volatility and escape the oil curse. Thus, our study searches in the Algerian case as one of the most important oil producers and exporters and it seeks to show the effect of oil price volatility on the economic diversification in Algeria by developing the guidelines for the Algerian state and non-state actors in managing the volatility of oil revenues then to diversify the economy. The study used different empirical tools to analyze the economic diversification reality and its relationship with the oil volatility and other economic and institutional variables namely the portfolio theory and the two stages least squares. The results showed a positive relationship between oil price volatility and economic diversification in Algeria but no role has been found for the other variables explaining the weak base and environment of this diversification. Consequently, the research recommended to the Algerian government to give more attention to the strategy implemented in the long term and not to focus on temporary decisions as interaction to the international fluctuations.