THE DYNAMIC CAUSAL RELATIONSHIP BETWEEN OIL PRICE AND ECONOMIC GROWTH IN OIL-IMPORTING SSA COUNTRIES: A MULTIVARIATE MODEL

Abstract

This study examines the causal relationship between oil price and economic growth in 14 oil-importing countries in sub-Saharan Africa during the period 1990 to 2018. The countries are further divided into two groups, namely seven low-income countries (LICs) and seven middle-income countries (MICs) in order to test whether the causality between oil price and economic growth depends on the countries’ income levels. Unlike previous studies that used a bivariate model, this study employs a multivariate Granger-causality model, which incorporates oil consumption and real exchange rate as intermittent variables in a bivariate setting between oil price and economic growth. The study employs panel cointegration and the panel Granger-causality tests to examine this linkage. The results of the study show that in the short run, there is a bidirectional causality between oil price and economic growth for the entire dataset, and both for the LICs and MICs. However, in the long run, there is a bidirectional causal relationship between oil price and economic growth for the entire dataset and MICs, but a unidirectional causality from economic growth to oil price for the LICs. Overall, the study found a feedback relationship between oil price and economic growth to be predominant.