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Abstract
<p>Fluctuations in oil price and its impact on economic development is an important issue facing a growing number of world economies. A simple changes in oil prices lead to negative or positive effects on all the economic sectors. This paper seeks to investigate the impact of oil price volatility on economic sectors in the Libyan economy context on the basis of annual data spanning from 1968-2012. The Johansen based Co-integration technique is applied to examine the sensitivity of economic sectors to volatility in oil prices in the long-run. And the short-run relationship is tested by Vector Error Correction Model. Through examining the results, that there is a long-term relationship of oil prices on the agriculture, construction, manufacturing and transport sectors. Finally, this study concludes that increases in oil price did not significantly affect the manufacturing sector in aggregate terms. Moreover, the negative impact on the sector of manufacturing and agriculture. Thus, this study has a significant impact in the Libyan economy in policy development on oil prices. The Libyan government needs to control the price to make sure that price volatility will not harm the manufacturing, agriculture, construction and transport sectors.</p>
Highlights
Crude oil is one of the world's most heavily traded commodities
Shaari et al (2013), explore the effects of oil price shocks on economic sectors in Malaysia, using the Co-integration model, and the results indicated that the long-term effects of oil prices on the agriculture, construction, manufacturing, and transportation sectors
The results show that oil price shocks do not affect the manufacturing sector in the short run, and it may have an effect on the manufacturing sector after the tenth quarter
Summary
Crude oil is one of the world's most heavily traded commodities. The volatility of oil prices may impose a significant impact on the economic conditions in the various countries. Crude oil prices change because of the interaction between the forces of supply and demand in the global commodity markets. Aimer, IJBSR (2016), 06(12): 13-24 oil prices throughout the world. According to Moradkhani et al (2010) that higher energy prices lead to other prices increase, such as crude oil, which plays an important role in determining the other goods. The rise in oil prices caused the production costs increase, leading to a decline in production. The rise in oil prices leads to increased productivity which negatively affects the economic performance. The subsidy is typically provided to mitigate such problems and eschewal an economic crisis
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