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Oil and the macroeconomy: empirical evidence from oil‐exporting African countries
Author(s) -
Iwayemi Akin,
Fowowe Babajide
Publication year - 2011
Publication title -
opec energy review
Language(s) - English
Resource type - Journals
eISSN - 1753-0237
pISSN - 1753-0229
DOI - 10.1111/j.1753-0237.2011.00195.x
Subject(s) - economics , oil price , granger causality , revenue , monetary economics , exchange rate , vector autoregression , earnings , empirical evidence , government revenue , macroeconomics , econometrics , finance , philosophy , epistemology
Most studies on the oil–macroeconomy relationship focus predominantly on advanced, oil‐importing countries. This study deviates from these studies by conducting an empirical analysis of the effects of oil price shocks on oil‐exporting countries from Africa. We make use of data over the period 1970 to 2006 and estimate vector autoregressions for four of the largest African oil exporters: Algeria, Egypt, Libya and Nigeria. The results of Granger causality tests agree with the evidence from previous research, and we find little evidence of a short‐run effect of oil price shocks on macroeconomic variables. Impulse response functions show that shocks to oil prices instigate volatile responses from macroeconomic variables, and in most cases, the initial responses of macroeconomic variables to shocks in oil prices are negative, thereby agreeing with previous research. This has the implication that although rising oil prices should provide more foreign exchange earnings, and consequently increased government revenue for these oil‐exporting African countries, such increases have not been channelled into improving economic activities.