Abstract
AbstractThe objective of this paper was to investigate the impact of crude oil consumption and oil price on the growth of the Ghanaian economy. It proceeded with annual time series data (1980-2016) sourced from World Development Indicator (WDI) and Energy Information Administration (EIA). All variables used in the study were integrated of order one as suggested by the Augmented Dickey-Fuller (ADF) test. Further, the Johansen Cointegration test suggested the existence of cointegration among the variables. The study used the OLS estimation procedure.The study found a positive and statistically significant relationship between oil price and economic growth in the long run. On the other hand, an inverse relationship was found between crude oil consumption and economic growth in the long run.Based on the findings the study recommends that the government diversify the economy to reduce the shock the economy might experience in times of oil price shocks. Further, risk management instruments like physical reserves and hedging against oil prices should also be employed.Also, the study recommends policies that encourage efficient consumption of crude oil, especially in the productive sectors like industry in order to trigger growth. This notwithstanding, the study recommends effective measures to mitigate the externalities associated with increased production and consumption of crude oil, such as the carbon tax.
Highlights
Crude oil in recent years has become a fulcrum around which all economies revolve
A large number of literature exist on the subject matter, but as to whether oil price is a driver of economic growth remains unclear
All data used in this study were obtained from the World Bank’s World Development Indicator (WDI) data base, with the exception of crude oil price and crude oil consumption which were sourced from Energy information Administration (EIA)
Summary
Crude oil in recent years has become a fulcrum around which all economies revolve. It has got vast importance across various sectors of every economy, both big and small. Given this importance, the discovery of crude oil triggers jubilation, excitement and optimism of economic emancipation, especially in the developing countries. Crude oil plays a cardinal role in the supply of the world’s energy demand. It is used in various ways like lighting, power for automobiles and other industrial activities. Given the role crude oil plays in the economic activities of the world, any substantial change in its price and consumption will influence economic output and the growth of economies
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