Abstract
This paper extends the literature on the effects of oil-price shocks using United States, Norway and South Africa as case studies between 1980 and 2010. The Structural Vector Autoregressive (SVAR) and Panel VAR methodologies are employed as an extension to the conventional unrestricted Vector Autoregressive (VAR) model. Results show that the developed economies (United States and Norway) stick to the non-linear oil-price shock specifications as argued in the literature. However, these are not feasible within the context of the emerging net-oil importing economy. Furthermore, Structural Vector Autoregressive (SVAR) model decisively restricts the oil-price shock effects while the effects intended to be captured may have been overruled by the identification restrictions imposed. Nevertheless, the Panel VAR methodology is able to accommodate all oil-price shock specifications. The claim that there exists a transmission mechanism through which positive oil price shock accruals can be beneficial to the global community was empirically verified using Foreign Direct Investment (FDI) as a proxy. In the other way round, there is suggestive evidence of possible unprecedented and unsatisfactory effects during negative oil-price shock periods.
Highlights
Oil-shock effect on macroeconomic activities has been an interesting research area in energy economics over the past decades
Our results show that the developed economies (United States and Norway) stick to the non-linear oil-price shock specifications argued in the literature
The data shows an insignificance of the structural break points located by the Quandt-Andrews unknown structural break point tests in the United States and Norway for all oil shock measures4 under consideration
Summary
Oil-shock effect on macroeconomic activities has been an interesting research area in energy economics over the past decades. This is partly as a result of recessions experienced by the developed economies aftermath of the early 1970’s oil shock. There is a need to have a broader understanding of the effects of oil price shocks which will accord importance to oil price shock effects in both developing and developed economies under the same platform. In this direction, the implementation of alternative Vector Autoregressive methodologies, simultaneously applied on a mixture of contextual development framework, is plausible
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