Does Institutional Quality Influence the Oil price-economic Growth Nexus: Evidence from African Oil Exporting Economies



Abstract Views
475

Downloads
592

Citations

Share

##plugins.themes.bootstrap3.article.sidebar##

Submitted Aug 16, 2021
Published Sep 10, 2021
10.24018/ejbmr.2021.6.5.1058

Abstract viewed = 475 times

Table of Contents

##plugins.themes.bootstrap3.article.main##

The primary contribution of this study is to investigate how institutional quality affects the relationship between the oil price changes and economic growth on net oil exporters in African countries split into net oil exporters and net oil importers. Whether oil price changes are good for the growth patterns of African economies lies on the interaction between oil prices and institutional quality. Oil price increases for oil exporting economies result in increased revenue which will be distributed to economic boosters of the economy however, the net effect of such revenues to the economies solely depends on how institutions distribute the oil rents to the various sectors of the economy. In contrast to the traditional direct effect of oil price changes to economic growth, this study shows that the impact of oil price on economic growth is non-monotonic in institutional quality. Oil exporting economies can benefit from oil price increase if they have good institutions. This has been assessed by including an interaction term, oil price-institutional quality, in the Panel Auto-Regressive (PARDL) using the Pooled Mean Group (PMG) model. Such a methodological framework has an added advantage over other model as it allows for modelling of data with different orders of integration. The PMG estimator allows the intercepts, short-run coefficient, and the error variance to differ freely across groups while the long-run coefficients are the same. Using data from 1990 to 2016, it is revealed that the sign of the coefficient interaction is positive and significant as theoretically expected. Furthermore, the coefficient of the interaction term is greater than the coefficient of oil price as anticipated. This would mean that as long as institutional quality is good enough, oil price changes positively influence economic performance on oil exporting economies. As such, the findings of this thesis have important policy implications. Since implementation of quality institutions is an on-going process, the study results suggest that institutions should be strengthened towards economic activities rather than for political mileage.

Keywords: economic growth, institutional quality, net oil exporters, oil price

Downloads

Download data is not yet available.

References

  1. International Energy Agency. (2016). IEA energy statistics 2016 Available at (2016) http://www.iea.org/statistics/.
     Google Scholar
  2. OPEC. (2016). Annual Statistical Bulletin.
     Google Scholar
  3. International Energy Agency. (2012). Germany. Oil and Gas security, emergency response of IEA countries. 1-13.
     Google Scholar
  4. Ezeh, A. and Lu, J. (2019). Transforming the institutional landscape in Sub-Saharan Africa: Considerations for leveraging Africa’s research capacity to achieve socioeconomic Development. Washington DC 20036.
     Google Scholar
  5. Yildirim, A. and Gokalp, M.F. (2016). Turkey institutions and economic performance: a review on the developing countries. Procedia Economics and Finance. 38, 347–359.
     Google Scholar
  6. Owasanoye, B. (2019). Nigeria major contributor to Africa’s $90 billion illicit financial outflow. 2019 Africa Union (AU) anti-corruption day in Lagos.
     Google Scholar
  7. Epaphra, M. and Kombe, A.H. (2018). Institutions and economic growth in Africa: evidence from panel estimation. Institute of Accountancy Arusha, Tanzania, February, 2018.
     Google Scholar
  8. Mishkin, F.S. and Schmiddt-Hebbel, K. (2007). Monetary policy under inflation targeting: an introduction. Santiago: Central Bank of Chile.
     Google Scholar
  9. International Energy Agency. (2020). World Energy outlook 2020. Iea.org/reports/world outlook.
     Google Scholar
  10. OPEC. (2012b). Monthly Oil Market Report for December 2012.
     Google Scholar
  11. Global financial report (2020). Bank regulation and supervision a decade after global financial crisis. Washington DC. World Bank.
     Google Scholar
  12. NYEMX. (2020). WTI crude oil futures and options.www.cmegroup.com.
     Google Scholar
  13. International monetary fund. (2015). Boom, burst, or prosperity? Managing Sub-Saharan Africa’s natural resource wealth. IMF, Washington D.C.
     Google Scholar
  14. World Bank. (2012). World development indicators. The World Bank, Washington D.C.
     Google Scholar
  15. AFDB (2012). African development report.
     Google Scholar
  16. World Bank. (2017). The World Bank annual report. Washington DC: World Bank.
     Google Scholar
  17. OPEC 2017
     Google Scholar
  18. OPEC, 2012 World Oil Outlook.
     Google Scholar
  19. Organization for Economic Cooperation and Development, (2014). OECD Economic Outlook 76, Paris: OECD.
     Google Scholar
  20. Berument, H., Ceylan, N.B. and Dogan, N. (2010). The Impact of Oil Price Shocks on the economic Growth of Selected Countries. The Energy Journal, 31(1), 149–176.
     Google Scholar
  21. International monetary fund. (2014). The impact of high oil prices on the global economy. Research and development, IMF, Washington D.C.
     Google Scholar
  22. International monetary fund. (2012). Boom, burst, or prosperity? Managing Sub-Saharan Africa’s natural resource wealth. IMF, Washington D.C.
     Google Scholar
  23. Duarte, M. and Restuccia, D. (2010). The role of the structural transformation in aggregate productivity. The Quarterly Journal of Economics, MIT Press, 125(1),129-173, February.
     Google Scholar
  24. Hamilton, J., D. (2009). Causes and Consequences of the Oil Shock of 2007-08. NBER Working Paper No. 15002.
     Google Scholar
  25. World Bank. (2016). World development report 2016. 91877. Washington DC: World Bank.
     Google Scholar
  26. Organization of the petroleum exporting countries (OPEC). (2015). Member countries Available: http: // www.opec.org/opec_web/en/about_us/25.htm.
     Google Scholar
  27. World Bank, (2015). Global economic prospect. The global economy in transition. Washington, DC: World Bank.
     Google Scholar
  28. Pindyck, R., S. (1994). Volatility and commodity price dynamics. Journal of Futures markets.
     Google Scholar
  29. Dornbusch, R., Fischer, S. and Kearney. C. 1996. Macroeconomics. The Mc-Graw-Hill Companies, Inc., Sydney.
     Google Scholar
  30. Harreth, A. (2012). The Role of Oil Prices and the Real Exchange Rate in Russia's Economy-A Cointegration Approach. Journal of Comparative Economics, 32(2), 315-327.
     Google Scholar
  31. Bartlett W., Сuǐkoviǎ N., Jurlin K., Nojkoviǎ A., Popovski V. (2009) Institutional quality and growth in EU neighbourhood countries. WP5/11 Search Working Paper.
     Google Scholar
  32. Rajhi, R. A., Seol, Y., & Yoon, K. H. (2005). Relative energy price and investment by European firms. Energy Economics, 33(5), 721-731.
     Google Scholar
  33. Jiménez-Rodríguez, R. and Sánchez, M. (2004). Oil price shocks and real gross domestic product growth empirical evidence for some OECD countries. Working Paper Series no. 362.
     Google Scholar
  34. Sachs, J. and Warner, M. (1995). Natural Resource Abundance and Economic Growth. National Bureau of Economic Research Working Paper 5398.
     Google Scholar
  35. Adedokun, A., J. (2012). Oil Export and Economic Growth: Descriptive Analysis and Empirical Evidence from Nigeria. Pakistan Journal of Social Sciences, Vol. 9(1), 46-58.
     Google Scholar
  36. Monesa, L. and Qazi, T. (2013). Effects of oil price shocks on economic growth of oil exporting countries. A case of six OPEC countries Business and economic review. Instiute of Management Science. Peshower Parkistan, Vol 5(1) 65-87.
     Google Scholar
  37. Sadhagi, A. (2017). Oil price and economic growth in oil expoerting economies. Does the size of government matter. IMF Working Paper.
     Google Scholar
  38. Kilian, L. (2008b). A Comparison of the Effects of Exogenous Oil Supply Shocks on Output and Inflation in the G7 Countries. Journal of the European Economic Association, 6(1), 78-121.
     Google Scholar
  39. Ciscar, J., C., Russ, P., Parousos, L. and Stroblos, N. (2004). Vulnerability of the EU economy to oil shocks: A general equilibrium analysis with the GEM-E3 Model. Institute for Prospective Technological Studies.
     Google Scholar
  40. Anorou, E. and Elike, U. (2009). An empirical investigation into the impact of high oil prices on economic growth of oil-importing African countries. International Journal of Economic Perspectives, 3(2), 121-129.
     Google Scholar
  41. Keikha, A., Keikha, A.and Mehrara, M. (2012). Institutional quality, economic growth and fluctuations of oil prices in oil dependent countries: A panel cointegration approach. Modern economy, 3, 218-222.
     Google Scholar
  42. Mork, K., A. (1994): Business Cycles and the Oil Market. Working Paper 1994/2, the Norwegian School of Management.
     Google Scholar
  43. Hoover, K., D. and Perez, S., J. (1994). Post hoc ergo propter once more: An evaluation of ‘Does monetary policy matter?’ in the spirit of James Tobin. Journal of Monetary Economics,34, 47-73.
     Google Scholar
  44. Lee, K. and Ni, S. (2002). On the dynamic effects of oil price shocks: A study using industry level data. Journal of Monetary Economics, 49, 823–852.
     Google Scholar
  45. Gounder, R. and Bartleet, M. (2012). Oil prices shocks and economic growth: Evidence for New Zealand, 1989-2006. Department of applied and international economics, Massey University, Palmerston North.
     Google Scholar
  46. Baghirov, A. (2014). Direct and indirect effects of oil price shocks on economic growth: Case of Lithuania. ISM University of management and economics.
     Google Scholar
  47. Raguindin, C. E.and Reyes, R., G. (2005). The effects of oil price shocks on the Philippine economy: a VAR approach. Working Paper, University of the Philippines School of Economics.
     Google Scholar
  48. Anashasy, E.D. (2006). Evidence on the role of oil prices in Venezuela’s economic performance: 1950-2001. Working paper. George Washington University.
     Google Scholar
  49. Fayyad, A. (2011). Volatility spillover effect of emerging markets and economic growth versus oil price volatility: the case of the gulf co-operation council countries. PhD thesis.
     Google Scholar
  50. Chang, Y. and Wong, J., F. (2003). Oil price fluctuations and Singapore economy. Energy Policy, 31, 1151-1165.
     Google Scholar
  51. Wakeford, J. (2003). The impact of oil price shocks on the South African macro economy: History and prospects. Working Paper No. 06/111. July 2006. Development Policy Research Unit, University of Cape Town.
     Google Scholar
  52. Bouzide, A. (2014). The Relationship of Oil Prices and Economic Growth in Tunisia: A Vector Error Correction Model Analysis. The Romanian Economic Journal, 3-43.
     Google Scholar
  53. Canta, W (2014). Crude Oil Price and Economic Growth: The Case of Ghana. Paper presented at the Centre for Study of Africa Economies Conference, Economic Development in Africa. St Catherine’s College, University of Oxford, and 23–25 March 2014.
     Google Scholar
  54. Naveed, I.S. (2010). Measuring the impact of changing oil prices and other macroeconomic variables on GDP in the context of Pakistan's economy. International Research Journal of Finance and Economics, 52,569-599.
     Google Scholar
  55. Mehdi, B. (2013). The relationship between Market Size, Inflation and Energy. Atlantic Review of Economics 2.
     Google Scholar
  56. Kilian, L. (2008b). A Comparison of the Effects of Exogenous Oil Supply Shocks on Output and Inflation in the G7 Countries. Journal of the European Economic Association, 6(1), 78-121.
     Google Scholar
  57. Blanchad, O. and Gali, J. (2008). The macro-economic effects of oil price shock: why are the 2000s so different from the 1970s? Forthcoming in: Gali and Gerthler (Eds). University of Chicago Press, Chicago.
     Google Scholar
  58. Bretschger, L. and Zurich, E., T., H. (2013). Energy prices, growth, and the channels in between: Theory and evidence. CER-ETH Centre of Economic Research at ETH Zurich.
     Google Scholar
  59. Sahib, F. (2013). Impact of oil price increases on U.S. economic growth: Causality analysis and study of the weakening effects in relationship. International Journal of Energy Economics and Policy 2(3), 2012, pp.108-122 ISSN: 2146-4553.
     Google Scholar
  60. Cavallo, M. and Wu, T. (2006). Measuring Oil-Price Shocks Using Market-Based Information. Federal Reserve Bank of San Francisco Working Paper Series, WP 2006-28.
     Google Scholar
  61. Alom, F. (2012). Economic effects of oil and food price shocks in Asia and Pacific countries: an application of the SVAR model. Paper provided by New Zealand Agricultural and Resource Economics Society in its series 2011 Conference, August 25-26, 2011, Nelson, New Zealand No. 115346.
     Google Scholar
  62. Fayyad, A. (2011). Volatility spillover effect of emerging markets and economic growth versus oil price volatility: the case of the gulf co-operation council countries. PhD thesis.
     Google Scholar
  63. Nilsson, A. and Sundqvist, A. (2010). Oil price effects on economic growth: A comparison between the BRIC countries and the Western World (G7). Bachelor Thesis in Economics.
     Google Scholar
  64. Elike, U.and Anoruo, E. (2009). An empirical investigation into the impact of high oil prices on economic growth of oil-importing African countries. International Journal of Economic Perspectives, 3(2), 121-129.
     Google Scholar
  65. Lau, E. and Jayarama, T.K. Oil Price and Economic Growth in Small Pacific Island Countries. Modern Economy, 2011, 2, 153-162.
     Google Scholar
  66. Hakan, K. and Nildag, B. C. (2014). The impact of oil price shocks on the economic growth of selected MENA Countries. Atlim University.
     Google Scholar
  67. Mahmud, S. (2013). Oil Demand, Oil Prices, Economic Growth and the Resource Curse: An Empirical Analysis. Thesis submitted for the degree of Doctor of Philosophy.
     Google Scholar
  68. Dimitrios, A. and Daniel, D., V. (2012). The effects of oil price on macroeconomic variables in oil exporting and oil importing countries. International Journal of Energy, Environment, and Economics 21(4).
     Google Scholar
  69. Zeinab, K.and Amirreza, K. (2013). The impact of oil price fluctuations on macro-economic variables of demanding and supplying countries. International Monthly Refereed Journal of Research In Management & Technology, 2 ISSN – 2320-0073.
     Google Scholar
  70. Ghalayin, L. (2011). The Interaction between Oil Price and Economic Growth .Article in review of Middle East economics and finance.
     Google Scholar
  71. Auty, R., M. (2007). Rent recycling theory, the resource curse, and development policy. Developing Alternatives. 11(1), 7-13.
     Google Scholar
  72. Sachs, J. and Warner, M. (1995). Natural Resource Abundance and Economic Growth. National Bureau of Economic Research Working Paper 5398.
     Google Scholar
  73. Ding, N. and Field, B.C. (2005). Natural resource abundance and economic growth. Land Economics, 81(4). 496-500.
     Google Scholar
  74. Spatafora, N. and Warner, A. (2001). Macroeconomic and sectoral effects of term of trade shocks: The experience of oil exporting developing countries. Paper presented at European Economic Association Meeting, Brussels.
     Google Scholar
  75. Anderson, S., P., Jacob, K., G. and Charles, A., H. (1998). Rent seeking with bounded rationality: an analysis of the all-pay auction. Journal of politics and economy, 106, 828–853.
     Google Scholar
  76. Stijns, J.P.C. (2000). National Resource Abundance and Economic Growth Revisited. Department of Economics, University of California at Berkeley.
     Google Scholar
  77. Gylfason, T. (2001). Natural Resources, Education, and Economic Development. European Economic Review, 45:847–854.
     Google Scholar
  78. Gerlach, R. and Papyrakis, E. (2004). The resource curse hypothesis and its transmission channels. Journal of Comparative Economics, 32: 181–93.
     Google Scholar
  79. Acemoglu, D., Johnson, S., and Robinson, J.A. (2002). An African success: Botswana, in D. Rodriquez (Ed.), Analytic development narratives. Princeton: Princeton University Press.
     Google Scholar
  80. Robert, O.D. (2011). The political economy of resource curse and the Niger delta crisis in Nigeria: matters arising. Afro Asian Journal of social sciences 5, 45–67.
     Google Scholar
  81. Akinwale, Y.O. (2012). Empirical analysis of resource curse in Nigeria. International Journal of Economics Management and Science, 2(13): 330-378.
     Google Scholar
  82. Ross, M.L. (2013). The oil curse: How petroleum wealth shapes the development of nations. Princeton University Press.
     Google Scholar
  83. Godwin, E.A. and Chuka, C. (2014). Natural resources, human capital, and economic development in Nigeria: Tracing the linkages. Journal of Economics and Economic Sustainable Development. 5, 35–52.
     Google Scholar
  84. Sarmidi, T., Law, S.H. and Jafari, Y. (2014). Resource Curse: New Evidence on the Role of Institutions. International Economic Journal, 28, 191–206.
     Google Scholar
  85. Pesaran, M.H. Shin, Y. and Smith, R.P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94 (446)
     Google Scholar
  86. Loayza, N.V., Ranci re, R., (2006). Financial development, financial fragility, and growth. Journal of Money, Credit and Banking, 38(4), 1051-1076
     Google Scholar
  87. Pesaran, M.H. Shin, Y. and Smith, R.P. (2001). Bounds testing approaches to the analysis of level relationships. Journal Of Applied Econometrics, 16, 289-326.
     Google Scholar
  88. Samargandi, N. (2014). Easays on financial development and economic growth. A Thesis Submitted for Degree of Doctor of Philosopy.Brunel University.
     Google Scholar
  89. Eberhardt, M. and Teal, F. (2011). Econometrics for grumblers: A new look at the literature on cross country growth empirics. Journal of Economic Surveys, 25(1), 109-155.
     Google Scholar
  90. Hakan, K. and Nildag, B. C. (2014). The impact of oil price shocks on the economic growth of selected MENA Countries. Atlim University.
     Google Scholar
  91. Berument, H., Ceylan, N. B. and Dogan, N. (2013). The Impact of Oil Price Shocks on the economic Growth of Selected Countries. The Energy Journal, 31(1), 149–176.
     Google Scholar
  92. Monesa, L. and Qazi, T. (2013). Effects of oil price shocks on economic growth of oil exporting countries. A case of six OPEC countries Business and economic review. Instiute of Management Science. Peshower Parkistan, Vol. 5(1) 65-87.
     Google Scholar
  93. Adedokun, A., J. (2012). Oil Export and Economic Growth: Descriptive Analysis and Empirical Evidence from Nigeria. Pakistan Journal of Social Sciences, Vol. 9(1), 46-58.
     Google Scholar
  94. Bouzide, A. (2012). The Relationship of Oil Prices and Economic Growth in Tunisia: A Vector Error Correction Model Analysis. The Romanian Economic Journal, 3-43.
     Google Scholar
  95. Rodrik, D. (2001). Institutions, integration and geography: In search of deep determinants of growth. Retrieved December 15, 2016.
     Google Scholar
  96. Lane, P. and Tornell, A. (1999). The voracity effect. American economic Review, 89 (1), 22-46.
     Google Scholar
  97. Eifert, B., Gelb, A. and Tallroth, N., B. (2002). The Political Economy of Fiscal Policy and Economic Management in Oil Exporting Countries, World Bank Policy Research Working Paper 2899, October.
     Google Scholar
  98. Mehlum, H., Moene, K. and Torvik, R. (2006). Institutions and the Resource Curse, Economic Journal, 116, 508, 1-20.
     Google Scholar
  99. Levine, L. (2013). Economic growth and the unemployment rate. Congressional Research Service, 1-7.
     Google Scholar
  100. Usman, A., Mobolaji, H. I., Kilishi, A. A., Yaru, M. A., & Yakubu, T. A. (2011). Public Expenditure and Economic Growth in Nigeria. Asian Economic and Financial Review, 1(3), 104-113.
     Google Scholar
  101. Salih, M. A. R. (2012). The Relationship between Economic Growth and Government Expenditure: Evidence from Sudan. International Business Research, 5(8), 40-46. http://dx.doi.org/10.5539/ibr.v5n8p40.
     Google Scholar
  102. Gules, R. (2013). Design and implementation of an electronic load: Applied power electronics conference and exposition 1166-1171.
     Google Scholar
  103. Essandoh-Yeddu. J. and Yalamova, R. (2015). Current drop in oil prices: impact on Africa. International Association for Energy Economics (IAEE) Energy Forum 4th Quarter (2015), 37-40 View Record in Scopus.
     Google Scholar
  104. Fields, G., S. (2011). Labor market analysis for developing. Labour economics, 18 (1), 16-22.
     Google Scholar
  105. Papyrakis, E. and Gerlagh, R. (2004). The resource curse hypothesis and its transimission channels. Journal of Comparative Economics 32: 181–93.
     Google Scholar
  106. The Economist, (2016). The Economist Nigeria Petrol Subsidies: A Fuel and Your Money (May 19th edition) (2016) https://www.economist.com/news/middle-east-and-africa.
     Google Scholar