Implications of oil price shocks on net oil-importing African countries

Obindah Gershon,Nnaemeka Emmanuel Ezenwa,Romanus Osabohien

doi:10.1016/j.heliyon.2019.e02208

Obindah Gershon, Nnaemeka Emmanuel Ezenwa + Show 1 more

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https://doi.org/10.1016/j.heliyon.2019.e02208

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Journal: Heliyon	Publication Date: Aug 1, 2019
Citations: 36	License type: cc-by

Affiliation: Covenant University, University of Port Harcourt

Abstract

The study examines the implications of oil price shocks on developing net oil-importing countries. The study considers the casual relationship, impulse response function, and vector decomposition between oil prices and macroeconomic variables using an unrestricted vector autoregressive (VAR) model. In addition, other robust econometric techniques were applied to the time series of oil prices, GDP per capita (GDPC), and energy consumption from 1980 to 2015. Mix results were obtained for the selected African countries - Cape Verde, Liberia, Sierra Leone, and The Gambia. Evidence from the granger test shows that oil prices cause GDPC in Liberia and Sierra Leone. Furthermore, analyses from the VAR model and Impulse response indicate that oil price increase will temporarily increase GDP per capita in the short run for the selected countries. The study recommends policies that can effectively mitigate the adverse effect of the oil price increase.

Highlights

other commodities has log (Oil) price fluctuations affect economies differently depending on whether they are net oil-importers or net oil-exporters
The unrestricted vector autoregressive (VAR) model requires that the optimum lag is selected using any of the criteria in EVIEWS 10
This is achieved by minimizing Akaike Information Criterion (AIC) or Schwartz Information Criterion (SIC) or Hannan-Quinn Information Criterion

Summary

Introduction

Oil price fluctuations affect economies differently depending on whether they are net oil-importers or net oil-exporters. The Arab oil embargo of 1973–1974, which caused the first oil shock, has triggered several discussions on the causal link between oil price and macroeconomic activities. Recent studies of this relationship on small oilimporting countries (Abimelech et al, 2017), claimed that rising oil prices will stimulate economic growth, which is not consistent with other studies that rising oil prices have an adverse effect on net oil-importers (Yanagisawa, 2012; Lemazoshvili, 2014; Shabhaz et al, 2017). Shengfeng et al (2012) via the vector error correction model (VECM) investigated the short-run and long-run causal relationship between electricity consumption and economic growth in China. The study observed unidirectional causality from electrical consumption to GDP growth and suggested the need for consumers to maintain regular supply through saving that fosters economic growth

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