The impact of crude oil price on food prices in Iraq

Abstract

AbstractAlthough substantial academic literature has attributed the increase in food prices to the role of crude oil price change, this unique connection has not experienced enough attention in net food‐importing and oil‐exporting developing countries. This research investigates the impact of oil price fluctuations on food prices in Iraq between 2001 and 2020 using time‐series econometric methods. Nevertheless, the oil price is a variable of interest, inflation is also added in the estimated models as a relevant extra determinant of food prices. The Johansen test and the autoregressive distributed lag bound test are used to evaluate the existence of cointegration between crude oil price and food prices. Results from the empirical analysis provided evidence indicating that a long‐run relationship between crude oil price and food prices exists in Iraq. Moreover, the outcomes from the forecast error variance decompositions suggested the existence of a monodirectional dynamic linkage between crude oil price and food prices. The empirical results from impulse response functions indicated a positive response for food prices due to one standard deviation shock in oil price. The study recommends short‐term and long‐term agricultural policies for Iraq to separate its dependency from international food markets that are affected by oil price shocks.