An Empirical Investigation into the Impact of High Oil Prices on Economic Growth of Oil-Importing African Countries
ABSTRACT
This paper examines the effect of high oil prices on economic growth of oil-importing African countries including — Tanzania, Namibia, Zambia, Kenya, Malawi, Burkina Faso, Ethiopia, Central African Republic and Rwanda. The paper employs annual data on economic growth and oil prices for the period spanning from 1971 through 2006.  The data were obtained from International Financial Statistics (IFS), published by International Monetary Fund.  The modified Dickey-Fuller (DF-GLS) and KPSS unit root tests were applied to ascertain the time series properties of oil prices and economic growth. To allow for structural breaks in the data, the study implements the Arai and Kurozumi (2007) cointegration test. To obtain the long run estimates, the fully modified OLS procedure proposed by Phillips and Hansen (1990) was applied.  The results from the DF-GLS and the KPSS unit root tests suggest that oil prices and economic growth for each of the sample countries are not stationary in their levels. They are however stationary at the 5 percent level after first differencing. We subsume from these results that the two time series have one order of integration [i.e. I(1)]. The results from the Arai and Kurozumi's (2007) cointegration test reveal that oil prices and economic growth share long run equilibrium relationship. The results obtained from the Phillips-Hansen FMOLS suggest that high oil prices retard economic growth for the sample countries. The implications of the results of the study are that the oil-importing countries of Africa should curtail their reliance on foreign oil and instead look for alternative sources of energy.
Keywords: Oil prices, economic growth, oil-importing African countries, developing countries, structural breaks
JEL Classification: F14 (Multilateral Trade and Developing Countries)