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Oil revenue
Oil revenue and agriculture
value-added in oil-exporting
countries: does the role of real
exchange rate matter? 171
Rizgar Abdlkarim Abdlaziz Received 5 November 2020
Revised 1 April 2021
Department of Management Technique, Sulaimani Polytechnic University, Accepted 9 May 2021
Sulaymaniyah, Iraq
N.A.M. Naseem
Department of Economics and Management, Universiti Putra Malaysia,
Serdang, Malaysia, and
Ly Slesman
Centre for Advanced Research (CARe), Universiti Brunei Darussalam,
Bandar Seri Begawan, Brunei Darussalam

Abstract
Purpose – This study aims to investigate the contingent roles real effective exchange rates (REERs) play in
mediating the effects of oil revenue on the agriculture sector value-added in 25 major and minor oil-exporting
(MIOEC) countries during the period of 1975–2014.
Design/methodology/approach – The panel autoregressive distributed lag (ARDL) estimator proposed by
Pesaran et al. (1999) was relied upon to achieve the objectives of the study. This estimator involves a pool of small
cross-sectional units over a long-time span that covers for 25 oil-exporting countries over 39 years (1975–2014).
Findings – This paper reveals the following findings. Firstly, oil revenue has a direct negative effect on
agricultural value-added in the short- and long-term. This finding holds for full sample and subsamples of
major oil-exporting (MAOEC) and MIOEC countries. Further assessment reveals that the magnitude of the
impact is larger for MAOEC than that of the MIOEC. Secondly, the finding for the long-run effect shows that
the contingent effect of real exchange rate on the nexus between oil revenue and agricultural value-added is
negative and statistically significant at the conventional level for the full sample. This suggests that, in the
long-run, the appreciation in real exchange rates exacerbate the negative marginal effects of oil revenue on
agricultural value-added in all oil-exporting countries. However, when sub-samples of MAOEC and MIOEC
are considered, the contingent effect disappeared (become insignificant) in MAOEC while it is positive and
statistically significant in MIOEC. Thus, in the long-run, the appreciation in real exchange rates diminishes
the negative marginal effects of oil revenue on agricultural value-added in MIOEC. While oil revenue has a
direct negative effect, its effect is also moderated by the variations in REERs in MIOEC in the long-run.
Finally, in the short-run, fluctuations in the real exchange rate do not matter for the nexus of oil revenue and
agriculture sector in these countries whether minor or MAOEC countries.
Originality/value – This study contributes to the debate in the empirical literature on the Dutch disease
effect and “oil curse”. Using the appropriate panel ARDL empirical framework, it provides evidence on how
exchange rate variations in the oil-exporting countries influence the nature of the effects of the oil revenue on
agricultural sectors in the long-run but not in the short-run. Contingent effects of REERs only appear to exist
in MIOEC in the long-run. International Journal of Energy
Sector Management
Keywords Co-integration, Energy sector, Econometric, Crude oil, Agricultural, Correlation analysis, Vol. 16 No. 1, 2022
pp. 171-190
Dynamic regression, Nonlinear programming © Emerald Publishing Limited
1750-6220
Paper type Research paper DOI 10.1108/IJESM-11-2020-0006
IJESM 1. Introduction
16,1 The current issue is to investigate the effect of oil revenue on the agricultural output of
developing oil-exporting countries. In their seminal work, Corden and Neary (1982) devised
a Dutch disease theory to explain the effect of the oil boom price on different sectors of the
economy. In the core model of the Dutch disease, the economy is divided into three sectors,
namely, the boomed sector (e.g. oil sector), the producer sector of tradable goods (e.g.
172 industrial output) and the non-tradable sector (e.g. service sector such as housing). The
model predicts an increase in national income because of high oil prices, and thus, the
booming oil sector further produces two effects. Firstly, an appreciation in the local currency
reduces the export of tradable goods in the international market. Secondly, the factor inputs
(labour and capital) would move from the industrial sector to the oil or boomed sector due to
the resource-movement effect, thereby reducing industrial production relative to the oil
sector.
Corden and Neary (1982) investigated Dutch disease in the industrial sector of developed
oil-exporting economies and found a negative effect of high oil price on industrial output.
They argued that, firstly, developed economies have a long-term experience in producing
industrial goods. The industrial sector is considered the primary sector that produces goods
for export to the global market. Secondly, the paper suggested the movement of capital and
labour is more flexible in developed countries. Consequently, an oil revenue increase
appreciates local currency, which leads to diminishing industrial exports through the
spending and resource-movement effects.
However, this condition may not be the case in developing oil-exporting countries. The
movement of input factors (labour and capital) between the booming oil sector and the
remaining sectors in an economy is inflexible. In addition, the agriculture (not industrial)
sector is typically considered the primary sector in nearly all developing economies. Thus,
agricultural output is negatively affected by high national income that stems from high oil
prices and oil revenues (Apergis et al., 2014). Fardmanesh (1991) argued that an increase in
the world oil price leads to the development of the industrial sector and contracts the
agriculture sector in developing oil-exporting economies. Based on the theoretical and
empirical studies of the Dutch Diseases, appreciation of the real exchange rate resulting
from rising oil income drives the countries’ traditional export contraction such as industrial
and agriculture sectors.
Literature on oil booms has focused less attention of its effects on the agricultural sector
(Apergis et al., 2014) while ignoring the indirect or contingent role of the real exchange rate
that may condition the influence of oil revenue on the agriculture sector. Many oil-exporting
countries operate a flexible exchange rate that may dynamically interact with oil revenue
(and fiscal position) in influencing the agricultural sector. Furthermore, the distinction
between minor and major oil-exporting (MAOEC) countries were not investigated in the
literature, which can further shed additional insight into the relationship between the oil
boom and the agriculture sector. This is because the sectoral intensities of oil and nonoil
sectors and reliance on oil revenue may differ between the two groups, and thus, the
intensity of Dutch disease effects, if any, may also differ in its intensity. The focus on the
interaction between oil revenue (or oil rent) and real exchange rate may take the symmetric
advantage of the two variables into account when assessing their effects on agriculture. Past
literature that focuses on the effects of either one or both variables on agriculture ignores
their interactive influences.
Therefore, the present study contributes to the debate by examining the contingent or
moderating effects of real exchange rates on the nexus of oil revenue and the agriculture
sector in both minor and MAOEC countries and the combined sample. This study further
adds value to the literature in the following manners. Firstly, further clarification is made on Oil revenue
the moderating effect through the evaluation of the sign and statistically significant of the
marginal effects of oil revenue on agricultural value-added at different real exchange rates.
Providing statistical tests at different levels of the exchange rate when assessing the oil-
agriculture nexus is crucial, so that policy implication is based on reliable empirical results.
Secondly, the panel autoregressive distributed lag (ARDL) estimator (Pesaran et al., 1999) is
used to examine dynamic short-run adjustment and long-run effects of over a relatively long 173
time span of 1975–2014 in three sets of samples, namely, full, subsamples of MAOEC
countries and minor oil-exporting (MIOEC) countries.
The remainder of this paper is organized as follows. Sub-Section 1.1 provides a
background discussion on the relationship between oil revenue and agriculture in the oil-
exporting countries. Section 2 reviews theoretical and empirical literature on the effect of oil
revenue on agriculture sectors. Then, Section 3 describes the empirical methodology used in
this paper. This follows by Section 4, which presents the empirical results and discussion.
Finally, Section 5 concluded the study with policy recommendations and directions for
future research.

1.1 Stylized facts on oil revenue and agriculture sector in oil-exporting countries
The agriculture sector is considered one of the important sectors that drive economic growth
in oil-exporting developing countries, e.g. Algeria, Tunisia, Iran, Egypt, Nigeria, Indonesia
and Malaysia. Agriculture still comprises a large share of the output composition of these
developing countries, hence it may provide a primary support for other sectors, e.g.
manufacturing, marketing, trade and service activities. This sector has also contributed to
employment; more specifically, it accounted for an average of 19% of total employment in
MAOEC and MIOEC in 2000–2014. In addition, agriculture supplies food for the
consumption of the population.
In line with the apprehension, the importance of the agriculture sector in developing
economies in general and oil-exporting developing economies, in particular, are
demonstrated as follows. Firstly, in contrast to renewable resources, oil is a depleting
resource that can eventually disappear. Thus, oil-exporting countries must set long-term
strategies to diversify their economies to avoid total oil dependency. Some countries in Gulf
Cooperation Council (GCC) have concentrated on export diversification by developing
service industries, such as banking and tourism (Morakabati et al., 2014). Other oil-exporting
countries (e.g. Algeria, Iran, Malaysia, Indonesia, Egypt, Tunisia and Nigeria) have also
focused on the tourism sector. In addition, they can improve the agriculture sector because
of the relatively large swathe of land, water and labour force. Gollin et al. (2002) empirically
confirmed that improving agricultural productivity can accelerate and push
industrialization and enhance national income per capita. Diao et al. (2010) referred to the
victory of the Asian green revolution and concluded that agriculture is still the key sector for
economic development in Africa.
Secondly, oil price instability in the world market dramatically affects oil revenue,
national income, government budget, government spending and all macroeconomic
activities of oil-exporting economies. Thus, improving non-oil sectors, such as agriculture
can mitigate the severity of oil revenue fluctuations in these economies. As most developing
MAOEC countries face the challenge of high population growth and high unemployment
rates especially among youth (about 10%–40% rates), further development of non-oil
sectors would minimize these problems and diversify the economy towards sustainable
growth paths.
IJESM Most oil-exporting countries have high potentials for different types of agricultural
16,1 products and have a long history of farming. Although most of these economies heavily
depend on crude oil export as their primary source of foreign exchange, on average, the
value-added share of agriculture to (gross domestic product) GDP of the MIOEC (14.45%) is
almost twice that of the MAOEC (8.3%) for the 1970–2014 period under preview.
Furthermore, oil-exporting economies lagged non-oil economies with regard to the
174 agricultural share from 1970 to 2014. For MAOEC, one possible explanation for neglecting
the agriculture sector is that high oil production that shapes total exports and government
spending.
Heterogeneity exists among oil-exporting countries in terms of the value-added
agricultural share of GDP. Indonesia (34%), Malaysia (29%), Egypt (28%), Ecuador (23%)
and Tunisia (17%) recorded their highest level of agriculture in GDP from 1970 to 1980.
Nigeria (26%), Algeria (10%) and Saudi Arabia (5%) reached their highest levels in the
1990s. The agriculture contribution to GDP of other oil-exporting states in GCC such as
Kuwait, Qatar and Oman, is marginal as shown in Figure 1.
The policy tools – such as fiscal policy, exchange rates, pricing and the trade regime –
that are necessary for managing oil revenue and government spending to optimize resource
allocation during and after oil boom periods differ among oil-exporting countries. Pinto
(1987) provided substantial evidence of contrast in policy and performance between Nigeria
and Indonesia during and after the first oil boom. In contrast to Indonesia, Nigeria suffered a
serious economic problem, for decades that included severe contraction in its agricultural
output and exports after the first oil boom. During the oil boom in the 1970–1982 period, the
annual production of Nigeria’s central crops – namely, cocoa, rubber, cotton and groundnuts
– decreased by 43%, 29%, 65% and 64%, respectively. By contrast, the share of agriculture
imports in the total imports increased from 3% to 7% from 1960–1980. In the case of
Indonesia, a good policy succeeded in avoiding severe interruption in agricultural output.
Indonesia’s rice production grew approximately 5% per annum from 1968 to 1984.
Figures 2 illustrate a scatterplot between oil revenue and real effective exchange rate
(REER) and their interaction term with value-added agriculture as a percentage of GDP in
the full sample, major and MIOEC countries, respectively. The relationship between oil
revenue and agriculture is positive for the entire sample of oil-exporting countries, whereas
such a relationship is negative for MAOEC and MIOEC. Nevertheless, the relationship
between the real exchange rate and agricultural share of GDP is positive for all cases. The
interaction effect between oil revenue and the REER on agricultural value-added seems to be

Figure 1.
Agriculture value-
added (%GDP) in the
oil-exporting
countries
 Full Sample of Oil Exporting Countries Oil revenue

Agriculture % GDP

e( agvgdp2 | X )
102030

102030
IDN
NGANGA NGA IDN
NGA
NGA
NGA NGA
EGY
IDN
ECU MYS
MYS
EGY NGA
NGA EGYIDN
MYS
MYS
EGY
PER
NGA
PERPER
NGA EGY
COL
ECU
COL
ECUIDN
ECU
NGA
IDN
NGA
MYS
MYS
ECU OMN
COG ECU
NGA EGY
COL
COLECU
NGA IDN
NGA
IDN
ECU MYS
COG COGIDN
COLCOL
IDN
COGIDN
EGY
COG
EGY
IDN COL
ECU
MYSGAB
EGY
ECU
EGY GAB
TUN
GAB
COG
TUNCOG
COG
GAB PER
PER ECU
COL
IDN NGA
EGY
IDN
COG
GAB OMN
MYS
ECU
COG
COL
ECUEGY
COGTUN
0
PER
OMN COL
IRN
MEX
MEXEGY
IDN
MEX
KWTTUN
MYS
MEX
ECU
IRN
SAUGAB
ECU
TUN
DZA
DZA
DZA
IRN GAB
GAB
COG
SAU
VENGAB PER COL
IDN
COG EGY
ECU COG
COG COG
GAB
EGY
COG
MYSGAB
GAB
EGYTUN
TUN COG IRN

0
SAU IRN
OMNDZA
IRN
SAU
COL IRN
MYS
MYS SAU
IRN
VEN
TUN
IRN
VENSAU
KWT
KWT
KWT IDN
COLGAB
TUN
GAB
IRN
EGY
IDN
ECU
DZA
DZAGAB IRN
-10

SAU KWT
DZATUN
ARGTUN
ARG TUN
COL
SAU
ARG
PER
VEN
OMN
PER
MEX VEN
VEN
OMN
PER
COL DZA
VEN
OMN
OMN
ARG
OMNKWT
ARGARG
DZA IRN PEROMNMEX
MEXIRN
MEX
KWTIRN
DZA
VEN
VEN
MYS TUN
SAU
SAU
MYS DZA
IRN
IRN
DZA
TUN
KWT
KWT
VEN
TUN IRN
KWT
SAU DZA
ARGDZA

-10
MEX
MEX
MEX
MEX ARG
KWT
ARG
ARG SAUOMN
COL
SAU SAU
TUN
TUN
MYS
KWT
ARG
COL
ARGARG
PER
MEX SAU
VEN
PER
VEN
OMN
VEN
KWT
VEN
OMN
COL DZA
ARG
PER
OMN
KWT ARG
ARGARGARG
MEX
MEX
MEX
MEX
-6 -4 -2 0 2 4 -.4 -.2 0 .2 .4 .6
Oil Rent %GDP Real Exchange Rate
coef = .32097345, se = .40592127, t = .79 coef = 13.194815, se = 4.4830494, t = 2.94
175

Agriculture % GDP
102030

NGAIDN
NGA
MYSNGA
MYS
EGY EGY
IDN
ECU NGANGA
OMN
COG MYSCOL
EGY
IDN
COL
NGA
IDN
NGAECU
ECU
MYS
ECU ECU NGA PER
NGA
PER
COG
COG
TUN
GABGAB
COGCOL
EGY
GAB
ECU
GAB
TUN EGY
IDN
COG
EGY
ECUCOL
IDN
IDN
COGPER
COL
COG COG
0

GAB
COG
GABGAB
GAB
SAU
KWTEGY
DZAMYS
TUN
ECU
TUN
DZA
IRN
VENDZA
KWT
KWTECUCOL
IDN
EGY
IDN
DZA
TUNSAU
MEX
MYS
IRN
TUN
VEN
SAU
IRN IRN
MEX
MEX
KWT
IRN
IRN
MYS
MYSMEX
COL
IRN PER
DZA
IRNOMN
-10

IRNDZA
ARG SAU
DZA
KWTVEN
KWT
OMNTUN
VEN
OMN
ARG
KWT
ARGVENTUN
MYS
OMN
VEN
ARG
OMN
OMN TUN
PER
COL
SAU
ARG
ARG
PER
COL
PER SAU
KWT
ARG
MEXDZA
MEX OMN SAU
SAU
ARG
ARG MEX
MEX
MEX

-5 0 5 10 15
Interaction term between oil rent and REER
coef = -.25051863, se = .194227, t = -1.29

Oil Rich Countries

Agriculture % GDP
-10 102030
1020

1020

NGA NGA NGANGA

NGA
NGA
NGA NGA
NGA
NGA
NGA
ECU ECU
NGA
ECU
NGA NGAOMN NGA
ECU
NGA NGA
NGA
ECU ECU
COG
COG COG
COG ECU
ECU
ECU OMN
COG
ECU
COGCOG COG
COG
COG
OMN COG
GAB ECU COG
COG
GAB COG
GAB
OMN ECU
COG COG
GAB COG
0
0

ECU IRN
GAB GAB
GAB
GAB
KWT
IRN GAB
COG
GAB ECU
GAB IRN
GABGAB
GAB
GAB
KWT
DZA
SAUIRN
IRN IRN
-10

SAU
SAU IRN
OMNECU
DZA
DZA
DZAIRN
SAU
IRN
SAU SAU
IRN
GAB IRN
ECU
DZA
IRN
SAU
IRN
GAB
SAU
ECU
KWT
IRN
SAU
VEN
VEN
VEN
SAU KWT
KWT
KWT
SAU
DZA
VEN DZADZA IRN SAU
SAUOMN
DZA
DZA
ECU
VEN DZA
SAU
IRN
KWT
IRN
SAU
VEN
VEN KWT
KWT
KWT
SAU
SAU DZA DZA
DZA
-10

VEN
VENOMN
VEN
VEN
OMN
OMNKWT
OMN
KWT
KWT
KWT VEN
VEN OMN
VEN
VEN
OMNKWT
OMN
OMN
KWT
KWT
KWT

-4 -2 0 2 4 6 -.2 0 .2 .4 .6
Oil Rent %GDP Real Exchange Rate
coef = -.07761312, se = .52729997, t = -.15 coef = 4.6065378, se = 7.3162938, t = .63
1020

NGA NGA
NGANGA
NGA
OMN NGA ECU
NGA
NGA
ECU NGA
ECU
COG
COG
COG ECU
ECU
COG
GAB COG
COG
GAB
COGECU
COG
COG
GAB OMN
0

IRN GAB
GAB
SAU
IRN
GABGAB
GAB
IRN
KWT
KWT IRN
KWT
GAB
IRN
SAU
DZA
IRN ECU
ECU
DZA
DZA
DZA
SAU IRN
OMNSAU
SAU
DZADZA
KWT
SAU ECU
IRN
SAU
DZA SAU
KWT
VEN
VEN
VEN
SAU
VEN
-10

KWT
OMN
KWT
KWTOMN
VEN
OMN
OMN
KWTVEN
VEN
VEN

-10 -5 0 5 10
Interaction term between oil rent and REER
coef = -.08336067, se = .24601751, t = -.34

Oil Poor Countries

Agriculture % GDP
1020

1020

IDN IDN
PER MYS MYS
EGY
COL
PER EGY
MYS
COL COL
COL
EGY MYS
EGY
IDN IDN PER PER COLIDN
COL IDN
PER
COL
IDN
MYS
IDN PER COL
IDN
COL
IDN
MYS
COL EGY PER
MYS IDN IDN
PERIDN COL
IDN
IDN EGY
MYS
TUN
MYS
EGY TUN
0

IDN IDN
MEXIDN
TUNTUN MEX EGY
EGY
0

EGY
PER
COLEGY
MYS
MYS
EGY
TUN
TUN
TUN
ARG
PER EGY
MEX
TUN
TUN
MYSMEX
EGY COL
ARG MYS
MEX
PER
ARGTUN
PER
ARG TUN
MEX
TUN
TUN
EGY
TUNMYS
EGY TUN
MYS
MYS
COL ARG
MEX
PERPER
ARG
-10

PER
ARG
PER
COL
ARGARGMEX
MYS MEX
TUN ARG
COLARGARG
-10

MEX
TUN
MEX ARG
COL
ARG
MEXARG
MEX MEX MEX
MEX ARG
MEXARG

-2 -1 0 1 2 -.4 -.2 0 .2
Oil Rent %GDP Real Exchange Rate
coef = -2.9425744, se = 2.0611518, t = -1.43 coef = 2.973464, se = 7.9932809, t = .37

Figure 2.
1020

IDN
MYS
EGY COL
MYS
COL PER The relationship
IDNEGY PER
IDN
PER TUN COL
IDN
MYS COL
PERIDN IDN
IDN
MYS
COL between agriculture
EGY IDN
TUNIDN
MEX
0

EGY
MEXEGY
MYS
MYS
TUN
MEX
TUN
TUN
EGY
MYSCOL
PER
TUN
TUN EGY
ARG
PER
ARGMYSARG
COL PER
PER
10

MEX ARG
COL
ARG
ARG MEX
TUN
MEX
ARG MEX
MEXMEX % GDP, oil revenue,
-4 -2 0 2 4 REER and
Interaction term between oil rent and REER interaction term of
coef = 1.5286991, se = .95199586, t = 1.61 REER and oil
Source: Authors’ calculation based on data from World Bank World revenue during
1975–2014
Development Indicators 2016
IJESM positive only for MIOEC. Hence, it could conceivably be conjectured that the Dutch disease
16,1 effect would exist if the effect of oil revenue on agriculture value-added is negative and that
the interaction term between oil revenue and REER is positive and statistically significant.
Otherwise, the Dutch disease effect does not occur. Overall, these preliminary data seem to
suggest the existence of a Dutch disease effect for the sample of MAOEC and MIOEC.

176 2. Literature review

The term “Dutch disease” have become prominent in economics and political science
literature after the discovery of natural gas in the North Sea during the 1960s. The adverse
effect of natural resources on the manufacturing sector in The Netherlands was generated
through frequent real exchange rate appreciations. This terminology has been used to
explain the negative effect of the booming sector on other lagging sectors in an economy.
Meade and Russell (1957) was the first study that examined the resource boom paradox.
Nevertheless, the influential work of Corden and Neary (1982) provided the core theory of
the Dutch disease. It involves three different sectors in an economy:
(1) The boomed sector (e.g. oil or natural resources).
(2) The tradable goods sector (goods produced for the international markets including
agriculture and industrial products).
(3) Non-tradable goods sector (goods whose prices are determined by internal demand
and supply, e.g. service sector such as the housing market).

A rapid increase in income in the boomed sector or a windfall discovery of new resources
that arise from the supply side of an economy implies that the boomed sector (i.e. the oil
sector) produces only for exports. Meanwhile, exports are affected by world commodity
price fluctuations, at the same time resource-exporting economies benefit from this increase
in world commodity price relative to import price. Larsen (2006) argued that Dutch disease
is intricately linked to three different effects, namely, resource movement, spending and
spillover–loss effects.
The resource movement effect is the reallocation of input factors, such as labour and
fixed capital, from other sectors and activities to the boomed sector in the economy.
Consequently, the output and production of other sectors will decrease, whereas the
production of the boomed sector will rise rapidly. Suppose that the demand for non-tradable
goods has a positive and elastic effect on income, and that the boomed sector (oil sector) can
generate additional income in the economy. Beneficiaries (e.g. from the booming oil sector)
can spend part of the income within the economy, pushing up the demand for non-tradable
goods, resulting in the real exchange rate appreciates. The rise in the relative price of non-
tradable goods increases the relative profitability of the non-tradable goods sector and
contracts that of the (non-resource) tradable goods sector. This case represents the spending
effect. Meanwhile, the spillover–loss effect indicates the loss of positive externalities that
results from the crowding-out effect of non-oil tradable goods.
In the case of developing resource-rich countries, Benjamin et al. (1989) and Fardmanesh
(1991) argued that the spending effect is only sufficient to establish the Dutch disease effect.
The core model of the Dutch disease can be more applicable to explain industrialized and
developed countries, in which the movement of capital among sectors is flexible. The
situation of developing oil exporter countries, however, differs from that of the
industrialized countries.
Oil export has dominated the international trade of oil-rich developing countries in the
global market. The dominance of the oil sector exerts adverse impacts on other non-oil
sectors in the economy. In MAOEC countries, the contribution of the oil sector to the local Oil revenue
labour force is marginal, and local factors of production (labour and capital) play a minor
role in the oil sector and the oil production process. In contrast to that of developed oil-
exporting countries, the boomed sector (oil sector) in oil-exporting developing countries does
not have sufficient flexibility to allow for the movement of factors of production to other
sectors (Van Wijnbergen, 1984). Thus, only the spending effect may appropriately explain
the Dutch disease in oil-exporting developing countries. The resource movement effect may
not satisfactorily detect the Dutch disease phenomenon (Moradi et al., 2010).
177
Therefore, in contrast with the main model of Dutch disease, the industrial sector in
developing oil-exporting countries has been positively affected by oil booms since the 1970s.
Conversely, agriculture outputs and exports contract during boom years in most of these
countries. This is because agriculture is the primary sector in these countries. Thus, Fardmanesh
(1991) provided a better way to explain Dutch disease in oil-exporting developing economies.
Fardmanesh argued that an increase in oil price and oil revenue would slow down the output and
export of agriculture in these economies. Thus, the Dutch disease model for oil-exporting
developing economies differs from that of oil-exporting developed economies. Fardmanesh found
that in nearly all cases, except for Venezuela, an oil boom and an increase in the world oil price is
associated with the output contraction in agriculture but expansion in manufacturing output.
Benjamin et al. (1989) obtained similar results for Cameroon. The paper noted a contraction in
traditional exports (the agriculture sector) due to an oil boom. This decline in agricultural
production was caused by an appreciation of the real exchange rate and the oil boom that led to
an expansion in industrial sector output.
A symptom of Dutch disease was found by Moradi et al. (2010) for the Iranian economy.
Mehdi and Reza (2011) confirmed the previous results. In the long term, a 1% increase in the
oil export of Iran caused a 13% decrease in the value-added agriculture. Furthermore, Olusi
and Olagunju (2005) demonstrated that the boomed sector leads to the slowdown of
agriculture production in Nigeria. Sekumade (2009) indicated that oil palm and groundnut
production are negatively affected by the amount of crude oil production. In the Malaysia
context, Shaari and Rahim (2013) further demonstrated that the oil price Granger causes the
agriculture sector. The results are mixed in a series of studies on sub-Saharan African
countries. For instance, Lawrence and Victor (2016) showed that oil revenue does not
granger cause agricultural production for Nigeria, while Ackah (2016) found the inverse
effect of oil rent on the value-added agriculture sector and that of Siakwah (2017) found oil
revenue windfalls to harm agriculture and industrial outputs in Ghana. Auty (2001) argued
that Botswana’s experiences seem to suggest that it is more successful in using its mineral
rents than Saudi Arabia. In a more recent study, Arif (2019) found that oil revenue supports
rural and agricultural reform for Indonesia while contrasting finding was found in the case
of Nigeria. Apergis et al. (2014) showed an adverse long-term relationship between oil rent
and value-added agriculture in selected (Middle East and North African (MENA)) countries.
In contrast to the above studies, Omgba (2011) and Ammani (2011) claimed that oil windfall
could not be held responsible for a fall in the agriculture sector.
In the case of the oil revenue and agriculture relationship, most studies looking at the
occurrence of the Dutch disease and de-agriculturalization in oil-producing developing
countries found support for the de-agriculturalization hypothesis. However, few of these
studies presented evidence that the exception to the adverse effects of oil revenue on the
agriculture sector for the cases of Cameroon and Botswana. Past studies not only rely on
time series analysis for a single country (Mehdi and Reza, 2011; Moradi et al., 2010; Omgba,
2011) – except Apergis et al. (2014) from a pool of MENA oil-exporting countries – but also
neglected the real exchange rate variable.
IJESM In this study, the moderating role of the real exchange rate is investigated while
16,1 controlling for other theoretically relevant variables, e.g. urbanization and arable land, in
our attempt to examine the contingent role of REER on the relationship between oil revenue
and the agricultural sector. In addition to this, this paper provides nuanced evidence from
the full sample, and MAOEC and MIOEC sub-sample to account for the heterogeneity to
clarify whether the direct and (exchange rate) conditioning effects of oil revenue on
178 agriculture differ.
To add further value to the stock of literature on the impact of real exchange rate on the
oil revenue-agriculture nexus, this study advances earlier studies by not only using the
linear interaction model (Abdlaziz et al., 2018) but also taking into account the calculation of
the standard errors (and the 5% significant lower and upper bounds), which has been
largely ignored by previous studies. This is to evaluate the marginal effect of oil revenue on
agriculture sectors at different levels of REERs using Brambor et al. (2006) methods. This is
to provide detail statistical evaluations of the marginal effects of real exchange rates. Such
analysis on two crucial policy variables, the oil revenue (importance for fiscal policy and
government expenditure) and the REER (one of the vital monetary policy variables), would
provide important policy insights for academics, policymakers and other stakeholders.

3. Methodology and data

3.1 Methodology
As discussed above, the Dutch disease effects are addressed from the perspective of the
spending effect, whereas the resource movement effect can be disregarded due to the
inflexibility of moving labour and capital in these countries (Corden and Neary, 1982; Rudd,
1996; Moradi et al., 2010). Thus, the valued-added agriculture as a function of spending
effects of the Dutch effect (Rudd, 1996) is considered for the oil-exporting developing
countries through the following specification.

AGV ¼ f ðspending effectÞ; (1)

where AGV denotes value-added agriculture. AGV would determine the existence of the
Dutch disease in the forms of de-agriculturalization in developing oil-exporting countries.
Oil revenue is used to capture the spending effect given that oil revenue’s share in the overall
fiscal income varies from approximately 64% to 80% in MAOEC countries. Governments in
most developing oil-exporting countries heavily depend on oil income for their public
spending. Furthermore, Dutch disease theory (Corden and Neary, 1982; Fardmanesh, 1991)
predicts that high oil revenue would cause exchange rate appreciation. This implies that the
exports of the primary sector would decrease in the global market. Consider the extended
equation (1) in the following form of equation (2).


AGV ¼ f ORGDP; INV; URB; v ARBL; REER; ðORGDP  REERÞ ; (2)

where ORGDP denotes oil revenue; INV is the investment percentage of GDP; URB is
urbanization; ARBL is arable land; REER is the real exchange rate; and ORGDP  REER is
the interaction term between oil revenue and the real effective exchange rate.
The panel ARDL estimator proposed by Pesaran et al. (1999) was adopted to achieve the
objectives of the study. This estimator involves a pool of cross-sectional and time series data
for oil-exporting countries in 1975–2014. The ARDL method is selected because of the
characteristics it possesses. Pesaran and Smith (1995), Pesaran (1997) and Pesaran and Shin
(1998) presented a new co-integration test through ARDL and error correlation modelling.
However, the emphasis of this test is on the need to have consistent and efficient parameter Oil revenue
estimates in a long-term relationship. Johansen (1995) and Phillips and Hansen (1990) stated
that a long-term relationship exists among variables only when the variables under study
are integrated in the same order.
However, Pesaran et al. (1999) (for panel ARDL) and Pesaran et al. (2001) (for time series
ARDL) demonstrated that ARDL could be applied even when the variables are not
integrated in the same order. Thus, the model can estimate parameters in a long-term
relationship regardless of whether the variables under study are I(0) or I(1) or a mixture of
179
both. This estimation is one of the central advantages of applying the ARDL model, which
makes it more flexible than other models with regard to dealing with non-stationary
variables. Another advantage of using panel ARDL specification is the availability of the
estimates of short-term and long-term coefficients in the panel data. Finally, the ARDL
model, especially pooled mean group (PMG) and mean group (MG), presents consistent
coefficients despite the possible presence of endogeneity because it includes lags of
dependent and independent variables (Samargandi et al., 2015).
The panel ARDL model proposed by Pesaran et al. (1999) aims to analyse the effect of oil
revenue on value-added agriculture. The manner in which agriculture output changes with
the level of oil revenue and real exchange rate as interaction terms between oil revenue and
the exchange rate is also investigated. On the basis of the theoretical framework, as
discussed above, equation (3) can be reformulated as follows:

AGVit ¼ ai þ l i AGVit1 þ b 10i ORGDPit þ b 11i ORGDPit1 þ b 20i INVit

þ b 21i INVit1 þ b 30i URBit þ b 31i URBit1 þ b 40i ARBLit
þ b 41i ARBLit1 þ b 50i REERit þ b 51i REERit1

þ b 60i ðREERit  ORGDPit Þ þ b 61i ðREERit1  ORGDPit1 Þ þ uit

(3)

In this study, the Akaike information criterion (AIC) is used as it outperforms the Schwarz
Bayesian information criterion in minimizing the probability of underestimation the true lag
length. AIC also maximizing the likelihood of recovering the true lag length (Liew, 2004).
Therefore, given the sample size oil-exporting countries, AIC results show one-lag length is
the optimum lag length, which would produce ARDL (1,1,1,1). Moreover, the reformulated
PMG estimator and the parametrization of the error correction term (ECT) for equation (4) is
presented as follows:

DAGVit ¼ 1i ½AGVit1  u 0i  u 1i ORGDPit  u 2i INVit  u 3i URB  u 4i ARBL

u 5i REERit  u 6i ðREERit  ORGDPit Þ þ b 10i DORGDPit þ b 20i DINVit

þ B3i DURBit þ B4i DARBLit þ b 50i DREERit

þ b 60i DðREERit  ORGDPit Þ þ uit (4)

where u i = (1  l i), u 0i = ai/1  l i, u 1i = b 10i  b 11i/(1  l i ), u 2i = b 20i  b 21i / (1  l i),

u 3i = b 30i  b 31i / (1  l i), u 4i = b 40i  b 41i/(1  l i ) and u 5i = b 50i  b 51i/(1  l i ), u 5i =
b 60i  b 61i/(1  l i ).
IJESM The marginal effect of oil revenue on agriculture value-added through the REER can be
16,1 derived from equation (5) as follows:

dAGV
¼ u 1i þ u 6i REER (5)
dORGDP

180 Based on Brambor et al. (2006), the standard errors for marginal effects of oil revenue on
value-added agriculture at each value of REER is computed using the formula in
equation (6) below.
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
@AGV
¼ varðu 1 Þ þ REER2 varðu 6 Þ þ 2 REER coverðu 1 u 6 Þ (6)
@ORGDP

3.2 Data and variable description

The above equations are estimated using the sample of 25 major and MIOEC countries for
annual data spanning from 1975 to 2014. Value-added agriculture (percentage of GDP) is the
dependent variable and is used as a proxy for the agriculture sector while oil revenue shares
of GDP used as a proxy of oil revenue. Additionally, series of control variables that are
closely guided by theoretical and empirical studies are included. REER is the real value of a
country’s currency in relation to its trading partners. The expected sign of REER is positive
to imply that exchange rate appreciation weakens the agriculture sector. Moreover, gross
fixed capital formation is used as a proxy for investment. The expected sign of investment
on the agriculture sector should be positive (Rosegrant et al., 1998; Bhatia, 1999). The urban-
rural population ratio is used to captures rural-urban migration and urbanization. The study
expects an adverse relationship between urbanization and the value-added agriculture
(Bhatia, 1999; Gardi et al., 2015). Finally, the expected sign of the effect of arable land on the
agriculture sector is positive (Brückner, 2012; Mundlak, 2001). All the data obtained from
World Bank World Development Indicator excluded REER from (Darvas, 2012).

4. Results and discussion

4.1 Panel unit root and cointegration results
The results of the panel unit root test, with a constant and trend, (not reported) for all groups
(full sample and MAOEC and MIOEC subsamples) show that the variables are integrated in
either of I(0) or I(1). None of the variables is I(2) suggesting panel ARDL can be validly
applied with the ensure properties of unbiasedness and consistent (Asteriou and
Monastiriotis, 2004) [1].
Table 1 reports the within and between panel cointegration test statistics (Pedroni,
1999, 2004) for the full sample and major and minor developing oil-exporting
countries subsamples. These tests are based on the null hypothesis that the variables
are not cointegrated. Four of the seven test statistics (with the trend and without
trend) strongly reject the null hypothesis of no cointegration for the 25 oil-exporting
countries. Furthermore, results for MAOEC show four out of the seven test statistics
(without trend) indicate rejection of the null, but only three out of the test statistics
(with trend) do the same. Similar to the full sample, for MIOEC, the majority of the
panel cointegration test statistics reject their null. In the lower panel of Table 1, the
results of the Kao residual-based panel cointegration test (Kao, 1999) are reported for
all cases. The results indicate a strong rejection of the null hypothesis of no
 Full sample Major oil-exporting countries (MAOEC) Minor oil-exporting countries (MIOEC)
Test statistics Intercept Intercept and trend Intercept Intercept and trend Intercept Intercept and trend

Within dimension
Panel V-statistics 0.023 [0.490] 1.145 [0.927] 0.140 [0.556] 1.327 [0.907] 0.363 [0.358] 0.290 [0.614]
Panel r -statistics 0.129 [0.551] 2.19 [0.985] 0.659 [0.745] 2.110 [0.982] 1.102 [0.135] 0.218 [0.586]
Panel pp-statistics 4.179*** [0.000] 3.187*** [0.000] 1.936** [0.026] 0.315 [0.739] 4.938*** [0.000] 5.665*** [0.000]
Panel ADF-statistics 5.158*** [0.000] 6.382*** [0.000] 2.881*** [0.002] 2.726*** [0.003] 5.295*** [0.000] 7.117*** [0.000]
Between dimension
Group r -statistics 0.961 [0.831] 2.335 [0.990] 1.104 [0.865] 1.803[0.964] 0.271 [0.607] 1.506 [0.934]
Group pp-statistics 5.836*** [0.000] 6.136*** [0.000] 3.051*** [0.001] 3.306*** [0.000] 5.151*** [0.000] 5.33*** [0.000]
*** ** ***
Group ADF-statistics 6.50 [0.000] 7.73*** [0.000] 1.846 [0.032] 1.60* [0.054] 5.030 [0.000] 6.549*** [0.000]
Kao residual 5.466*** [0.000] 4.733*** [0.000] 2.266*** [0.004]

Notes: ***, **and *indicate rejection of null hypothesis at 1%, 5% and 10% level of significance, respectively. Values in square brackets are p-value

Table 1.
181

test
Panel cointegration
Oil revenue
IJESM cointegration among variables. Thus, overall, there exists a stable long-run
16,1 relationship between the value-added agriculture (AVG) and its determinants.

4.2 Empirical results and discussion: oil revenue and agriculture sector
Table 2 shows the estimated results and findings of the effect of oil revenue on the
agriculture sector of 25 oil-exporting countries, and the subsamples of MAOEC and MIOEC.
182 Three different models are estimated for each group. The first and second models are
baseline models (without the interaction term between oil revenue and the exchange rate)
using one and two lags, respectively. The third model is a baseline model with interaction
terms between oil revenue and the exchange rate. The results are obtained using PMG and
MG estimators. However, only the significant results of the Hausman test (Hausman, 1978)
are presented for simplicity and clarity [2]. The PMG estimator enables the estimation of
coefficients by restricting the long-term slope to be homogeneous whilst allowing the short-
term coefficients to be heterogeneous.
As shown in Table 2, the models fulfilled the requirements of the PMG estimator in most
cases. Firstly, the Hausman test was applied to examine the efficiency of the PMG estimator
compared with the MG estimator. As expected, the Hausman test indicated that the
restriction of long-term homogeneity for all the coefficients cannot be rejected at the
conventional level of statistical significance in nearly all the models (except for Model 2 for
MAOEC and MIOEC). That is, the Hausman test showed that PMG is preferred over MG in
most cases. In addition, the occurrence of cointegration among the variables being studied is
further confirmed given that the ECT are negative and statistically significant.
Firstly, this study looks at the control variable, specifically urbanization, which is
considered as one of the factors that limit the agriculture sector in most of developing
countries. Results in Table 2 show the negative and significant long-run effect of
urbanization on agriculture in all cases (excluding Mode 2 for full sample). A 1% increase in
urbanization reduces agriculture value-added share of GDP by 0.11%, 0.13% and 0.10% for
the entire sample, MAOEC and MIOEC, respectively. These results are in parallel with
Brückner (2012), who found that an increase in urbanization is associated with a reduction in
the share of agriculture value-added for the sample of African countries. Berry (1978)
showed different types of direct and indirect effects of urbanization on agriculture output,
food producing and agricultural productivity.
Concerning the effect of arable land on the agriculture sector, the results show a positive
and significant effect of arable land on agriculture value-added in Model 2 for the full
sample. A 1% increase in arable land generates approximately 0.018% value-added
agriculture. This result is consistent with the theory of agricultural production. However,
the results of Model 1 indicate a negative effect of arable land on agriculture value-added for
MAOEC. This result are in line with the finding of previous empirical studies that reported
an adverse effect of the oil sector on the non-oil sector in general (Pinto, 1987).
In terms of investment, the results are negative and highly significant for all the models.
Such a result is unexpected, but it is not unfamiliar in the empirical studies. Bashir (2015)
revealed that fixed capital formation has an adverse effect on agriculture sector output for
middle-income developing countries. Furthermore, recently Ogunlesi and Bokana (2018)
showed that capital as the real value of all machinery, equipment and buildings displays a
negative effect on agricultural productivity for Sub-Saharan Africa. One plausible reason for
this finding is that the public investment may take a larger share in the total investment and
that such investment may be biased towards oil sector, and hence, may not contribute to the
growth of agricultural value-added. This crowding-out may be plausible.
 Full sample Major oil-exporting countries (MAOEC)
1 2 3 1 2

Long run effect

Urbanization 0.11*** (4.80) 0.013*** (3.40) 0.18*** (13.26) 0.13*** (8.20) 0.28** (2.55)
Ln investment/GDP 0.15*** (5.34) 0.18*** (8.58) 0.12*** (7.06) 0.39*** (7.80) 0.15* (1.87)
Arable land 0.003 (0.44) 0.018*** (7.52) 0.019*** (7.34) 0.15*** (2.74) 0.31 (1.21)
Ln oil revenue/GDP (LORGDP) 0.035*** (3.01) 0.012 (0.67) 0.175*** (3.11) 0.33*** (6.64) 0.26*** (3.10)
Ln real effective exchange rate (REER) 0.14*** (4.52) 0.015 (0.61) 0.123*** (3.66) 0.05 (1.02) 0.126 (1.61)
OIL  REER 0.043*** (3.57)
Error correction term (ECT) 0.22*** (5.34) 0.30*** (4.50) 0.46*** (5.01) 0.24*** (3.65) 0.77*** (8.21)
Hausman test 2.26 [0.81] 5.44 [0.36] 8.45 [0.20] 4.76 [0.44] 36.65 [0.000]
Threshold value – – 4.07 – –
Short run effect
Urbanization 0.17 (0.28) 1.9 (1.27) 0.24 (0.30) 0.96 (1.41) 0.54 (0.56)
Ln investment/GDP 0.07* (1.87) 0.02 (0.59) 0.001 (0.20) 0.11*** (3.44) 0.007 (0.03)
Arable land 0.07 (0.54) 0.067 (0.37) 0.11 (0.59 0.26 (0.78) 0.21 (0.56)
Ln oil revenue/GDP (LORGDP) 0.13*** (3.42) 0.10*** (2.74) 0.63 (0.89) 0.20*** (3.43) 0.15*** (2.85)
Ln real effective exchange rate (REER) 0.08 (0.64) 0.09 (0.79) 0.17 (0.28) 0.078 (1.20) 0.054 (0.67)
OIL  REER 0.10 (0.69)
Number of country 25 25 25 12 12
Number of observations 959 934 937 468 456

Notes: Ln is natural logs, Columns 1 and 2 are the specification baseline model with Lags 1 and 2, respectively. Column 3 is a baseline model with an interaction
term between oil revenue and real effective exchange rate for full sample, major and minor oil-exporting countries. ***, **and *indicate statistically significant at
1%, 5% and 10%, respectively. Values in square brackets are p-value and values in parentheses are t-statistics
(continued)

Results of PMG
Table 2.

on agriculture sector
impact of oil revenue
estimator of the
183
Oil revenue
 16,1

184
IJESM

Table 2.
Major oil-exporting countries (MAOEC) Minor oil-exporting countries (MIOEC)
3 1 2 3

Long run effect

Urbanization 0.14*** (10.57) 0.107*** (3.91) 0.27 (1.09) 0.10*** (3.89)
Ln investment/GDP 0.24*** (7.67) 0.13*** (4.63) 0.07 (0.98) 0.158*** (5.34)
Arable land 0.017*** (4.24) 0.009 (1.16) 0.09 (1.18) 0.011 (1.31)
Ln oil revenue/GDP (LORGDP) 0.36 (1.59) 0.030*** (2.63) 0.04** (2.31) 0.39*** (2.99)
Ln real effective exchange rate (REER) 0.15 (1.02) 0.15*** (4.49) 0.001 (0.02 0.065*** (10.41)
OIL  REER 0.035 (0.79) 0.078*** (2.76)
Error correction term (ECT) 0.49*** (3.37) 0.30*** (4.26) 0.84*** (10.61) 0.30*** (4.56)
Hausman test 5.79 [0.44] 4.13 [0.53] 35.27 [0.000] 11.19 [0.082]
Threshold value – – – 5
Short run effect
Urbanization 1.37 (1.52) 0.62 (0.63) 1.73 (0.96) 0.55 (0.56)
Ln investment/GDP 0.008 (0.018) 0.014 (0.28) 0.04 (0.74) 0.03 (0.61)
Arable land 0.22 (0.60) 0.01 (0.36) 0.04 (1.26) 0.021 (0.63)
Ln oil revenue/GDP (LORGDP) 0.56 (0.36) 0.013 (0.82) 0.001 (0.09) 0.34 (1.22)
Ln real effective exchange rate (REER) 0.13 (0.10) 0.47 (0.31) 0.04 (0.42) 0.073 (0.25)
OIL  REER 0.067 (0.21) 0.066 (1.13)
Number of country 12 13 13 13
Number of observations 456 506 493 506
As shown in Table 2, the models fulfilled the requirements of the PMG estimator in most Oil revenue
cases. Firstly, the Hausman test was applied to examine the efficiency of the PMG estimator
compared with the MG estimator. As expected, the Hausman test indicated that the
restriction of long-term homogeneity for all the coefficients cannot be rejected at the
conventional levels for nearly all the models (except for Model 2 for MAOEC and MIOEC).
That is, the Hausman test showed that PMG is preferred over MG in most cases. In addition,
the existence of cointegration among the variables being studied is further confirmed as the 185
ECT are negative and statistically significant at the conventional levels.
As shown in Table 2, the baseline Model 1, for the entire sample, MAOEC and MIOEC,
show that there are adverse impacts of oil revenue on the agriculture sector in these oil-
exporting countries. Furthermore, there are differences in the magnitudes of coefficients on
the oil revenue variable for MAOEC and MIOEC subsamples. Assessment of these
coefficients suggests that a 1% increase in oil revenue would reduce the agriculture valued-
added by 0.035%, 0.33% and 0.03% for the full sample, MAOEC and MIOEC, respectively.
Like Model 1, Model 2 shows a negative and significant effect of oil revenue on agriculture in
MAOEC and MIOEC, whereas the result is insignificant for the full sample. Again, the
magnitude of the effect in MAOEC is larger than the one reported for the full sample and
MIOEC subsample.
The aforementioned results are consistent with the theoretical prediction of the Dutch
disease theory that oil revenue or resource income would harm and slow down the output in
non-oil sectors of the oil-exporting countries. For example, Fardmanesh (1991) found that an
increase in oil price would reduce the output of agriculture in oil-exporting developing
countries. Our finding corroborates past empirical studies that investigated on Iran (Mehdi
and Reza, 2011), MENA oil-exporting countries (Apergis et al., 2014), Malaysia (Shaari and
Rahim, 2013) and Nigeria (Olusi and Olagunju, 2005).
Additionally, in the short run, the effect of oil revenue on agriculture is negative and
significant for the full sample and MAOEC. The baseline model for full sample and MAOEC
show the negative and statistically significant short-term effect of oil revenue on agriculture.
However, the effect is insignificant for MIOEC. Quantitatively, a 1% increase in oil revenue
decreases value-added agriculture share of GDP by about 0.13% and 0.15% for the entire
sample and MAOEC, respectively. These results are consistent with the empirical findings
of Apergis et al. (2014).
In line with Dutch disease theory, the appreciation of the REER diminishes agriculture
outputs. In addition, the results of Model 1 show a positive and significant effect of REER on
the agriculture sector of the full sample and MIOEC, whereas it is insignificant for MAOEC.
Thus, an increase (depreciation) in the REER leads to a rise in value-added agriculture by
0.14% and 0.15% for the full sample and MIOEC, respectively. These results are consistent
with those of Rudd (1996) for Indonesia and Nigeria.
From a contingent role of real exchange rate perspective, interaction terms present an
indirect effect of oil revenue on the agriculture sector at different levels of the REER in oil-
exporting countries. Model 3 in Table 2 represents the interaction model for the full sample
and subsamples of MAOEC and MIOEC. Model 3 shows oil revenue exerts a significant and
adverse impact on the agriculture sector of MAOEC and MIOEC, whereas the relationship is
positive for the entire sample. However, as mentioned earlier, the interaction terms cannot be
interpreted based on the single constant effect. Therefore, equation (5) applies to evaluate
the marginal effect of oil revenue on agriculture. Figure 3 shows the marginal effect of oil
revenue on the agriculture sector at different levels of the REERs for all three groups of oil-
exporting countries.
IJESM
16,1 Full sample
0.1
0.05
0
3.5 4 4.5 5 5.5 6 6.5 7 7.5
– 0.05
186 – 0.1
– 0.15
– 0.2
– 0.25

coefficients lower interval upper interval

Major oil exporng countries

0.2
0.1
0
– 0.1 3.5 4 4.5 5 5.5 6 6.5 7 7.5

Figure 3. – 0.2
Marginal effect of oil – 0.3
revenue on – 0.4
agriculture sector at – 0.5
level of real effective
exchange rate coefficients lower interval upper interval

As shown in the figure, for the full sample, oil revenue exerts a positive and
statistically significant marginal effect on agriculture at the lower level of the REER
(appreciation), while the marginal effect is negative and significant at the higher level
of the REER (depreciation). In contrast, for MIOEC, the marginal effect of oil revenue
on agriculture is negative and statistically significant at the lower levels of the
REERs (appreciation), while it is positive and statistically significant at the higher
level of the REER (depreciation). That means, in MIOEC, oil revenue is harmful for the
agriculture sector when the oil boom leads to an appreciation of the REER; otherwise,
it is beneficial for the agriculture sector. For MAOEC, the interaction term is not
significant, suggesting that real exchange rate does not moderate the oil revenue in its
influence on agriculture value-added, beside its direct effect. In other words, real
exchange only directly influences on agriculture in MAOEC.
Coefficient assessment for the full sample suggests that a 1% increase in oil revenue
diminishes value-added agriculture by 0.15% at the maximum level of the REER, while it
generates value-added agriculture by 0.02% in the lower level. For the MAOEC, a 1%
increase in oil revenue leads to a decrease in value-added agriculture by 0.24% and 0.10% at
the minimum and maximum level of the REER, respectively. However, in MIOEC, a 1%
increase in oil revenue reduces agriculture by approximately 0.15% at lower levels of the
REER while it is causing an improvement of 0.08% in agriculture at the maximum level of
the REER [3].
 These findings suggest that oil-exporting countries (both major and minor) suffer from Oil revenue
the Dutch disease phenomenon in terms of de-agriculturalization. MIOEC may suffer less as
the magnitude of the coefficients is smaller than that of the MAOEC. Furthermore, oil
revenue has positive marginal effects when there is REER depreciation. That is, oil
abundance exerts an adverse impact on the agriculture sector. In addition, the results of the
marginal effect of oil revenue on the agriculture sector in the three groups are consistent
with the Dutch disease theoretical prediction.
Our finding supports the economic theory that dependency on oil revenue and windfall 187
would be at the expense of the non-oil sector especially the agricultural sector. This is
particularly even more important as fluctuation in the exchange rate has a negative
moderating effect on oil revenue-agriculture nexus. More volatile and high REER tend to
diminish the agriculture value-added through increasing reliance on oil revenue. Policy
implication would be that oil-exporting countries should diversify their economies, and
initiate policies that stabilize the exchange rate and support the non-oil sector.

5. Conclusion
This paper extent past literature (Moradi et al., 2010; Apergis et al., 2014; Abdlaziz et al.,
2018) in investigating the interaction effects of oil revenue and real effective exchange on the
agriculture sector of 25 developing oil-exporting counties (major and minor). The Pedroni
cointegration test suggests the variables are cointegrated for all samples indicating the
existence of long-term relationships between them. The main empirical findings show oil
revenue has a negative and highly significant impact on the agriculture sector for all
samples in both the long- and short-term. The negative effect of oil revenue is found to be
larger for MAOEC countries. In addition, REER appreciation is harmful to agriculture
output in the oil-exporting countries. This finding is in agreement with Moradi et al. (2010)
and Apergis et al. (2014), etc. Overall, our finding supports the popular view that oil booms
and abundant oil resources will cause a contraction in traditional sectors, such as
agriculture, in developing oil-exporting countries (Fardmanesh, 1991).
More importantly, the marginal effects of oil revenue on value-added agriculture are
confirmed at different levels of the effective real exchange rates. Such finding confirmed the
existence of Dutch disease effect where the indirect effect of oil revenue on agriculture works
through the REERs in both the major and MIOEC groups. However, the finding shows the
interaction term is not significant for MAOEC countries. These findings are consistent with
theories (Corden, 1981, 1984; Corden and Neary, 1982; Van Wijnbergen, 1984) suggesting oil
revenue or resource income will appreciate the local currency and diminish the non-oil
sectors, e.g. agriculture. One important policy implication is that oil-exporting countries
especially the MAOEC economies would be better off with necessary policies to reduce the
Dutch disease effects and the consequent slowdown in agricultural outputs.
There are some policy implications from these findings. Firstly, governments in oil-
exporting countries should devise policy tools to support and promote the agriculture sector.
For example, it should closely manage the imported agriculture prices and trade policy to
ensure they benefit the local agriculture sector. This would minimize the Dutch disease
effect. Secondly, proper macroeconomic management – such as government spending and
public investment in the agriculture sector, rural infrastructure and improving farmer
productivity – are considered effective policy instruments to prevent Dutch disease in these
countries. Thirdly, oil revenue and government spending should be used efficiently to avoid
spending effect as an important channel for Dutch disease. These consequently help to
minimize local currency appreciation. Fourthly, as our finding also indicates urbanization
may negatively affect the agriculture sector in the oil-exporting countries. Hence,
IJESM governments should try to balance out between urban and rural development imbalances to
16,1 tame the possible waves of migration while providing financial support to farmers in terms
of capital, education and technology. Such initiatives would reduce the adverse impact of
urbanization on agriculture in these countries. Finally, both public and private investment
should be centralized on the agricultural sector for reasons discussed above and
importantly, to further increase agricultural value-added. As argued earlier, this may be
188 because of its biases towards the modern sector and possibly the oil sector. Despite this
contribution, it is also acknowledged the limitation of this study that may provide further
avenues for future research. This study focuses on developing oil-exporting countries;
therefore, future research can use different proxies of oil revenue and exchange rate for
developed oil-exporting countries.

Notes
1. The results of Unit Roots test are available upon request.
2. To save space, the MG results is available upon request.
3. To save space, the Table detailing coefficients, standard error and p-value of marginal effect will
be made available upon request.

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Further reading
Mehdi, A. (2011), “A study examining the effect of oil exports on agricultural value added in Iran”,
Journal of Education and Vocational Research, Vol. 2 No. 1, pp. 10-17.
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Applied Econometrics, Vol. 16 No. 3, pp. 289-326.
Shaari, M.S., Pei, T.L. and Rahim, H.A. (2013), “Effects of oil price shocks on the economic sectors in
Malaysia”, International Journal of Energy Economics and Policy, Vol. 3 No. 4, pp. 360-366.

Corresponding author
Rizgar Abdlkarim Abdlaziz can be contacted at: rizgarabdlkarim@gmail.com

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