Asymmetric Effects of Positive and Negative Oil Price Shocks on Economic Growth in African Oil-Exporting Countries

Abstract

The paper has looked at the asymmetric impacts of positive and negative oil price shock on the growth of the economy of African oil-exporting nations using Nigeria and Algeria as the comparative case studies. This research was driven by the fact that the volatility of international crude oil prices was on the rise and the fact that the economies reacted differently towards the rise and fall of oil prices. In particular, the analysis examined how positive oil price shocks and negative oil price shocks impacted the economic growth in the period 2000-2025.The ex post facto research design was adopted when based on annual secondary panel data collected by the World Bank, International Monetary Fund , Organization of Petroleum Exporting Countries , International Energy Agency and the African Development Bank . The growth rate of Real Gross Domestic Product was used to measure economic growth, and the changes in oil prices were broken down into positive and negative partial sums according to the nonlinear method of Shin, Yu, and Greenwood-Nimmo (2014). The research used descriptive statistics, panel unit root tests, panel cointegration tests, Panel Nonlinear Autoregressive Distributed Lag (Panel NARDL) model, Wald asymmetry tests, and post- estimation diagnostic tests. Illustrative (hypothetical) panel data consistent with trends observed in previous empirical studies were used for the analysis.The results showed that positive oil price shocks have positive and statistically significant impact on economic growth as compared to negative oil price shocks which have negative and statistically significant impact. The findings also indicated that the negative impacts of falling oil prices are much higher in comparison to the economic benefits attributed to rising oil prices. The Wald asymmetry test affirmed that both positive and negative oil price shocks have different impacts on economic growth in the short and long-term, and hence there is evidence of asymmetric macroeconomic responses. The paper also determined a long-run equilibrium between the shocks in the prices of oil and economic growth.The research paper concludes that overreliance on petroleum revenues places the African oil-exporting economies to asymmetric external shocks which hamper sustainable economic growth. It suggests faster economic diversification, greater fiscal stabilization mechanisms, better management of sovereign wealth funds, increased non-oil revenue mobilization, and integration of asymmetric oil price dynamics in the macroeconomic policy making. Such steps are critical to strengthening the economy and attaining sustainable development in Nigeria and Algeria, as well as other oil-exporting nations in Africa.

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