The dynamics of the real purchasing power of Algeria’s oil revenues

Abstract

This paper seeks to evaluate the impact of Algeria’s international trade structure, characterized by a strong asymmetry between exports denominated almost exclusively in US dollars and imports invoiced in alternative currencies, on the real purchasing power of this country’s oil revenues.Using a 1970-2013 dataset, we construct, and adjust these revenues by means of, two indices. The first index captures the fluctuations in the value of the US dollar against a basket of currencies of Algeria’s main import partners.The second accounts for changes in the inflation passed through imports from these partners. We find a persistent loss in the real purchasing power of Algeria’s oil revenues, that however decreased, up to the late 1990s and then, thanks to a relatively stable imported inflation, turned into a gain after the year 2000. Besides allowing us to disentangle the effects of the US dollar fluctuations and the world inflation on the dynamics of the real purchasing power of Algeria’s oil revenues, our analysis cast some light on the genuine role oil resources have played in the development of this country’s economy over the last four decades.

Keywords: Algeria, Oil revenues, Real purchasing power, Dollar exchange rate, Importedinflation