Dynamic relationships between oil revenues, government spending and economic growth in an oil-dependent economy

The aim of this paper is to empirically examine the relationship between Oil revenues, government spending and GDP growth in the kingdom of Bahrain. Oil revenues are the main source of financing government expenditures and imports of products. Increasing oil prices in the recent years have boosted public expenditures on social and economic infrastructure. In this paper we will investigate whether the huge government spending has enhanced the pace of economic growth or not. To this end we use a trivariate cointegration analysis and error-correction model and data for 1960-2010. Overall results suggest that oil revenues remain the principal source for growth and the main channel which finance the government spending