An empirical nexus between oil price collapse and economic growth in Sub-Saharan African oil based economies
DOI:
https://doi.org/10.22437/ppd.v5i4.4973Abstract
The focus of this study, is to empirically investigate the nexus between oil price collapse and economic growth in sub-Saharan Africa oil based economies, specifically from Angola, Nigeria and Sudan between January, 2010 and December, 2015, through panel random effects model (REM): Economic growth rate (GDPR) and independent variables: Oil price (OPR), Exchange rate (EXR), Industrial Output (IND) and Terms of Trade (TOT. REM result showed that there is negative link between oil price collapse and the economic growth in the case of Angola, Nigeria and Sudan, which confirmed the nexus between oil price collapse and economic growth. Post estimation tests such as Hausman and Breusch and Pagan Lagrange Multiplier Test were adopted to empirically show the consistency and efficiency of the model. Interestingly, the two key variables (GDPR and OPR) disclose how unprecedented oil price fall disrupts economic growth of the selected economies. Meanwhile, poor institutional quality in the oil sector coupled with poor fiscal measure among others, further expose these economies to unprecedented external shocks that was characterized by skyrocket exchange rate, hence destabilize growth within the period under review. Therefore, the need for a robust fiscal measure is pertinent in order to sustain economic growth
Downloads
References
Abubakar, A. M., Agayev, F., & Ilkan, M. (2013) Energy demand interplay with real GDP and oil prices. Advances in Management & Applied Economics, 3(4), 95-103.
AfDB/OECD/UNDP (2015), African Economic Outlook 2015: Regional Development and Spatial Inclusion, OECD Publishing, Paris, http://dx.doi.org/10.1787/aeo-2015-en.
Africa’s Pulse (2015) An analysis of issues shaping Africa’s economic future. Available online:http://www.worldbank.org/content/dam/Worldbank/document/Africa/Report/Africas-Pulse-brochure_Vol11.pdf [Accessed 01/05/2016].
Akpan, E.O. (2009) Oil price shocks and nigeria‘s macro economy. In A Paper Presented at the Annual Conference of CSAE Conference, Economic Development in Africa, March 2009 (22-24).
Al-Khouri, R. & Dhade, A. (2014) The role of savings in reducing the effect of oil Price volatility for sustainable economic Growth in oil Based economies: The case of GCC Countries. International Journal of Economics and Finance, 6(4), 172.
Apergis, N. & Payne, J.E. (2014) The oil curse, institutional quality, and growth in MENA countries: Evidence from time-varying cointegration. Energy Economics, 46, 1–9.
Asteriou, D. & Villamizar, D.D. (2013) The effects of oil price on macroeconomic variables in oil exporting and oil importing countries. International Journal of Energy, Environment and Economics, 21(4), 323-341.
Atalla, T., Joutz, F. & Pierru, A. (2016) Does disagreement among oil price forecasters reflect volatility? Evidence from the ECB surveys. International Journal of Forecasting, 32(4), 1178–1192.
Ayres, R.U., Van den Bergh, J. M., Lindenberger, D., Warr, B. (2013) The underestimated contribution of energy to economic growth. Structural Change and Economic Dynamics, 27, 79–88.
Balcilar, M., Ozdemir, Z.A. & Yetkiner, H. (2014) Are there really bubbles in oil prices? Physical: A Statistical Mechanics and its Applications, 416, 631–638.
Behmiri, N.B. & Manso, J.R.P. (2013) How crude oil consumption impacts on economic growth of Sub-Saharan Africa? Energy, 54, 74.
Bentley, R. & Bentley, Y. (2015) Explaining the price of oil 1971–2014 : The need to use reliable data on oil discovery and to account for “mid-point†peak. Energy Policy, 86, 880–890.
Bildirici, M.E. & Kayıkçı, F. (2013) Effects of oil production on economic growth in Eurasian countries: Panel ARDL approach. Energy, 49, 156-161.
Blomberg, S.B., Broussard, N.H. & Hess, G.D. (2011) New wine in old wineskins? Growth, terrorism and the resource curse in sub-Saharan Africa. European Journal of Political Economy, 27, S50–S63.
Bretschger, L. (2015) Energy prices, growth, and the channels in between: Theory and evidence. Resource and Energy Economics, (39) 29-52.
Burbidge J., Harrison A. (1984) Testing for the effects of oil-price rises using Vector Autoregressions. International Economic Review, 25(2), 459-84.
Castro, C., Jerez, M. & Barge-Gil, A. (2016) The deflationary effect of oil prices in the euro area. Energy Economics, 56, 389–397.
Chuku, C.A., Akpan, U.F., Sam, N.R. & Effiong, E.L. (2011) Oil price shocks and the dynamics of current account balances in Nigeria, OPEC Energy Review, 35(2), 119-139.
Cunado, J. & Perez de Gracia, F. (2005) Oil prices, economic activity and inflation: evidence for some Asian countries. The Quarterly Review of Economics and Finance, 45(1), 65–83.
DE, O. & Osaze, I.D. (2013) Oil price volatility and its consequences on the growth of the Nigerian economy: An Examination (1970-2010). Asian Economic and Financial Review, 3(5) 683.
Ebaidalla, E.M. (2014) The effects of oil price volatility on the Sudanese economy. Eastern Africa Social Science Research Review, 30(1), 1-26.
Ebele, E. (2015) Oil Price Volatility and Economic Growth in Nigeria: An Empirical Investigation. European Journal of Humanities and Social Sciences, 34(1), 1901-1918.
Ebohon, O.J. (1996) Energy, economic growth and causality in developing countries: A case study of Tanzania and Nigeria. Energy Policy, 24(5) 447-453.
Eltony, M.N. & Al-Awadi, M. (2001) Oil price fluctuations and their impact on the macroeconomic variables of Kuwait: a case study using a VAR model. International Journal of Energy Research, 25(11) 939-959.
Fantazzini, D. (2016) The oil price crash in 2014/15: Was there a (negative) financial bubble? Energy Policy, 96, 383–396.
Ftiti, Z., Guesmi, K., Teulon, F. & Chouachi, S. (2016) Relationship between crude oil prices and economic growth in selected OPEC countries. Journal of Applied Business Research, 32(1) 11.
GarcÃa-Carranco, S.M., Bory-Reyes, J. & Balankin, A.S. (2016) The crude oil price bubbling and universal scaling dynamics of price volatility. Physica A: Statistical Mechanics and its Applications, 452, 60–68.
Gil-Alana, L.A. et al. (2016) Time series analysis of persistence in crude oil price volatility across bull and bear regimes. Energy, 109, 29–37.
Gisser M., Goodwin T. (1986) Crude Oil and the Macroeconomy: Tests of Some Popular Notions. Journal of Money, Credit, and Banking 18, 95-103.
Hannan, B. & Bridwell, L. (2012) Oil price volatility: How queuing theory can explain and warn of impending problems in our energy system. Pace University, 10 (2).
Hamilton, J. D. (1983) Oil and macro economy since World War II. Journal of political Economy, 91, 228-248.
Hamilton, J. D. (2003) What is an oil shock? Journal of Econometrics, 113, 363-398.
Hamilton, J.D. (2009) Causes and Consequences of the Oil Shock of 2007–08, Brookings Papers on Economic Activity, 2009(1), 215-261.
Hazarika, I. (2015) An analytical study on the impact of fluctuating oil prices on OPEC economies. International Journal of Trade, Economics and Finance, 6(3), 161-164.
Herrera, A.M., Karaki, M.B. & Rangaraju, S.K. (2016) Where do jobs go when oil prices drop? Energy Economics.
Hesary, F.T., Yoshino, N., Abdoli, G. & Farzinvash, A. (2013) An estimation of the impact of oil shocks on crude oil exporting economies and their trade partners. Frontiers of Economics in China, 8(4), 571-591.
Hoeffler, A.E. (2002) The augmented Solow model and the African growth debate. Oxford Bulletin of Economics and Statistics, 64(2) 135-158.
IMF (2015) Do resource windfalls improve the standard of living in Sub-Saharan African countries? Evidence from a panel of countries. Available online: https://www.imf.org/external/pubs/ft/wp/2015/wp1583.pdf [Accessed 5/07/2016]
International Monetary Fund (2016) The impact of oil prices fluctuations on non-oil growth in Gabon, CEMAC: Selected Issues Paper, pages 4–8.
Investopedia (2015) Economic growth. Available online: https://index.investopedia.com/index/?q=Economic%20growth&o=40186&qo=investopediaSiteSearch [Accessed 01/05/2016].
Jhingan M. L. (2003) Advanced economic theory: The theory of economic growth, 12th edition. Delhi: Vrinda Publications (P) Ltd.
Ju, K. et al. (2014) Macroeconomic effects of oil price shocks in China: An empirical study based on Hilbert–Huang transform and event study. Applied Energy, 136, 1053–1066.
Katircioglu, S.T. et al. (2015) Oil price movements and macroeconomic performance: Evidence from twenty-six OECD countries. Renewable and Sustainable Energy Reviews, 44, 257–270.
Khuran, S., Liu, H., & Rehana, N. (2015) Economic adjustment of United Kingdom and exchange rates. International Journal of Information, Business and Management, 7(2), 116–122.
Kindleberger, C.P. (1989) Manias, Panics and Crashes: A History of Financial Crises, second (revised) ed. Basic Books, New York.
Kirbyson, G. 2015, "Alberta feeling full brunt of oil price collapse", Bottom Line, 31(15), 1-1,5.
Kuboniwa, M. (2014) A comparative analysis of the impact of oil prices on oil-rich emerging economies in the Pacific Rim. Journal of Comparative Economics, 42(2), 328–339.
Lescaroux, F. & Mignon, V. (2009) On the influence of oil prices on economic activity and other macroeconomic and financial variables, OPEC Energy Review, 32(4), 343-380.
Menegaki, A.N. & Tugcu, C.T. (2016) Rethinking the energy-growth nexus: Proposing an index of sustainable economic welfare for Sub-Saharan Africa. Energy Research & Social Science, 17, 147–159.
Mijiyawa, A.G. (2013) Africa's Recent Economic Growth: What Are the Contributing Factors? African Development Review, 25(3), 289-302.
Mgbame, C. O., Donwa, P. A., Onyeokweni, O.V. (2015) Impact of oil price volatility on economic growth: Conceptual perspective. International Journal of Multidisciplinary Research and Development, 2(9), 80-85.
Moshiri, S. (2015) Asymmetric effects of oil price shocks in oilâ€exporting countries: the role of institutions, OPEC Energy Review, 39(2), 222-246.
National Bureau of Statistics (2015) Revenue generated in the Nigerian economy. Available online: http://www.nigerianstat.gov.ng/ [Accessed 01/05/2016].
Ndulu, B., & O'Connell, S. (1999). Governance and Growth in Sub-Saharan Africa. The Journal of Economic Perspectives, 13(3), 41-66. Retrieved from http://www.jstor.org/stable/2646984
Ngongang, E. (2015) Financial Development and Economic Growth in Sub-Saharan Africa: A Dynamic Panel Data Analysis. European Journal of Sustainable Development, 4(2) 369-378.
Nusair, S.A. (2016) The effects of oil price shocks on the economies of the Gulf Co-operation Council countries: Nonlinear analysis. Energy Policy, 91, 256–267.
Nwabughiogu, L (2016) Economy: Why rain is beating us now – Buhari. The Vanguard, 27 June [online]. Available at: http://www.vanguardngr.com/2016/06/economy-rain-beating-us-now-buhari [Accessed 28/06/2016].
Ogiri, I. H., Amadi, S. N., Uddin, M. M., & Dubon, P. (2013) Oil price and stock market performance in Nigeria: An empirical analysis. American Journal of Social and Management Sciences, 4(1), 20 – 41.
Olomola, P. A. & Adejumo. A.V. (2006) Oil price shock and macroeconomic activities in Nigeria. International Research Journal of Finance and Economics, 3, 29-34.
Omojolaibi, J.A. & Egwaikhide, F.O. (2014) Oil price volatility, fiscal policy and economic growth: a panel vector autoregressive (PVAR) analysis of some selected oilâ€exporting African countries. OPEC Energy Review, 38(2), 127-148.
Oriakhi, D. E., &Osazee, I. D. (2013) Oil price volatility and its consequences on the growth of the Nigerian economy: An examination (1970-2010). Asian Economic and Financial Review, 3(5), 683-702.
Ozlale, U. & Pekkurnaz, D. (2010) Oil prices and current account: a structural analysis for Turkish economy. Energy Policy Review, 38(8), 4489–4496.
Panopoulou, E. & Pantelidis, T. (2015) Speculative behaviour and oil price predictability. Economic Modelling, 47, 128–136.
Pirog, R. (2004) Natural gas prices and market fundamentals. CRS Report for Congress Congressional.
Sachs, J. D. and A. Warner (1995a) Economic Reform and the Process of Global Integration. Brookings Papers on Economic Activity, 1, 1–95.
Santini D. (1985) The Energy-Squeeze Model: Energy Price Dynamics in U.S. Business Cycles. International Journal of Energy Systems 5, 18-25.
Schubert, S.F. & Turnovsky, S.J. (2011) The impact of energy prices on growth and welfare in a developing open economy. Open Economies Review, 22(3), 365-386.
Stern, D.I. (2016) Economic Growth and Energy. In Reference Module in Earth Systems and Environmental Sciences.
Tian, H. (2016) The Role of China’s Real Economic Activity in Oil Price Fluctuations. Procedia - Social and Behavioral Sciences, 220, 522–530.
Tokic, D. (2015) The 2014 oil bust: Causes and consequences. Energy Policy, 85, pp.162–169.
Uche, N.C., Ijeoma, M. A., & Uzoechina, B. I. (2016) Oil price volatility and macroeconomics performance in Nigeria: The principal-component GARCH approach. Journal Harmonized Research in Management. 2(1), 125-134.
U.S. Energy Information Administration (2013) Oil and Natural Gas in Sub-Saharan Africa. Independent Statistics & Analysis, 1-25.
World BANK (2015) Economic Growth of Sub-saharan Africa. Available online: http://databank.worldbank.org/data/reports.aspx?source=2&country=ARE&series=&period=http://data.worldbank.org/country/sub-saharan%20africa [Accessed 24/04/2016].
Wu, G. & Zhang, Y.-J. (2014) Does China factor matter? An econometric analysis of international crude oil prices. Energy Policy, 72, 78–86.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2018 KEJI Sunday Anderu
This work is licensed under a Creative Commons Attribution 4.0 International License.
