Implications of oil price shocks on net oil-importing African countries.

Abstract

The study examines the implications of oil price shocks on developing net oil-importing countries. The study considers the casual relationship, impulse response function, and vector decomposition between oil prices and macroeconomic variables using an unrestricted vector autoregressive (VAR) model. In addition, other robust econometric techniques were applied to the time series of oil prices, GDP per capita (GDPC), and energy consumption from 1980 to 2015. Mix results were obtained for the selected African countries - Cape Verde, Liberia, Sierra Leone, and The Gambia. Evidence from the granger test shows that oil prices cause GDPC in Liberia and Sierra Leone. Furthermore, analyses from the VAR model and Impulse response indicate that oil price increase will temporarily increase GDP per capita in the short run for the selected countries. The study recommends policies that can effectively mitigate the adverse effect of the oil price increase.