COMPLEX CORRELATION BETWEEN ECONOMIC GROWTHAND OIL EARNINGS: EMPIRICAL STUDY FROM BRUNEI DARUSSALAM USING AN ARDL – BOUND TEST APPROACH AND ECM

Abstract

The study examines the impact of oil rents on Brunei Darussalam's economic prosperity, official exchange rate and inflation between 1990 and 2017, with the help of Autoregressive Distributed Lag (ARDL), bound test approach as well as Error Correction Model (ECM). The bond test F- statistic value shows that the variables are long - term integrated. Empirical estimation of ECM indicates that the fuel revenue coefficient has a positive and significant effect on economic growth in the country. In contrast, the official exchange rate and inflation have inverse implications. It means that increasing oil export patterns will lead to positive economic growth. Official exchange rate instability and inflation have inverse repercussions. From the policy point of view, fuel industry growth, stable government exchange rates, and inflation have seemed to create a better ramp up in Gross Domestic Product. We, therefore, propose to increase investment in the petroleum sector and pursue the same policy concerning official exchange rates and inflation to benefit the national economy in the future

JEL Classification: C50, N15,C32,O40, Q00