Hydrocarbon price shocks and uncertainty: implications for Algeria's economic growth

Abstract

This study examines the effects of hydrocarbon short‐term price shocks and long‐term price uncertainty on Algeria's economic growth. Throughout its post‐independence era, hydrocarbons have been used to promote rapid economic growth and industrialisation. Algeria's pronounced reliance on a volatile primary commodity market makes the analysis of price uncertainty and shocks pertinent to other countries. Since 1986, the beginning of a prolonged downturn of the international oil market, Algeria's state of affairs unveiled severe imbalances: high inflation and unemployment rates, declining international revenues, a heavy foreign debt burden, and political unrest. Annual data from the 1965–98 period reveal a significant relationship between hydrocarbons and economic growth. Statistical evidence depicts a direct relationship between short‐term price shocks and real per capita growth rates. In addition, a counter‐intuitive relationship is found in the positive correlation linking ex ante uncertainty in the international hydrocarbon sector and per capita real output growth rates. Moreover, government monetary and fiscal interventions as well as political instability may have been detrimental to economic growth.