The Effect of Oil Revenues on Government Size and Economic Growth in Selected Countries (Iran, Norway, Saudi Arabia)

Abstract

The present study evaluated the effect of oil revenues on government size and economic growth in Iran, Saudi Arabia, and Norway. Time series data for 1980-2010 were collected from the Central Bank and the World Bank. For this purpose, a system of simultaneous equations and 2SLS two-stage least squares method was used. The results show that the Iranian and Saudi oil income and capital positively and significantly influenced GDP. The government size negatively influenced GDP. In addition, oil revenues positively affected and GDP negatively influenced the government size. The results for Norway are similar to other countries except that oil revenue was removed from the model due to its insignificance. Finally, recommendations were provided for optimal allocation of oil revenues to the investment, transfer of non-governmental organizations to private sector and development in the currency funds.