Determinants of Economic Growth in Selected African Oil Producing Countries

Farag Gaballa; Nazatul Haron

doi:10.53697/emba.v5i2.2979

Authors

Farag Khalifa Gaballa University Sultan Zainal Abidin
Nazatul Faizah Haron University Sultan Zainal Abidin

DOI:

https://doi.org/10.53697/emba.v5i2.2979

Keywords:

Economic Growth, Oil Revenue, Non-Oil Revenue, Oil Prices

Abstract

This study aims to examine the impact of oil revenue, non-oil revenue, and oil prices on economic growth in five African oil-producing economies, Nigeria, Angola, Algeria, Libya, and Egypt, over the period 1970 to 2020. The study applied second-generation econometric techniques, including the Cross-sectional Im–Pesaran and Cross-sectional Augmented Dickey-Fuller tests, Westerlund panel cointegration, the CS-ARDL model, and Dumitrescu and Hurlin heterogeneous panel Granger causality. The results reveal cross-sectional dependence and slope homogeneity among the countries. Panel unit root tests indicate that all variables are stationary at first difference, while cointegration tests confirm a long-run equilibrium relationship. Empirical evidence shows that oil revenue, non-oil revenue, and oil prices significantly influence economic growth, with bidirectional causality between these variables and growth. These findings highlight the need for economic diversification by expanding non-oil revenue sources and implementing supportive policies to sustain long-term growth. The study recommends that policymakers prioritize investment in non-oil sectors and strengthen domestic participation in oil production to foster inclusive and sustainable development.

References

Abdelsalam, M. A. M. (2020). Oil price fluctuations and economic growth: The case of MENA countries. Review of Economics and Political Science, 5(1), 57–72.

Ackah, I., Asante, F., & Martey, E. (2021). Oil wealth and economic growth in oil-rich African countries: The role of institutional quality. Resources Policy, 70, 101907.

Acemoglu, D., Robinson, J. A., & Verdier, T. (2017). Asymmetric growth and institutions in an interdependent world. Journal of Political Economy, 125(5), 1245–1305.

Adewuyi, A. O., & Awodumi, O. B. (2020). Biomass energy consumption, economic growth and carbon emissions: Fresh evidence from West Africa using a simultaneous equation model. Energy, 119384.

Ahmad, A. H., Aworinde, O. B., & Martin, C. (2018). The role of institutional quality in the natural resource rents and economic growth nexus: Evidence from sub-Saharan Africa. Resources Policy, 59, 257–267.

Akinsola, M. O., & Odhiambo, N. M. (2021). The dynamic causal relationship between oil price and economic growth in oil-importing SSA countries: A multivariate model. Facta Universitatis, Series: Economics and Organization, 18(3), 217–228.

Akinsola, M. O., & Odhiambo, N. M. (2022). The impact of oil price on economic growth in middle-income oil-importing countries: A non-linear panel ARDL approach. Acta Universitatis Sapientiae, Economics and Business, 10(1), 29–48.

Al-Mulali, U., Ozturk, I., & Lean, H. H. (2015). The influence of economic growth, urbanization, trade openness, financial development, and renewable energy on pollution in Europe. Natural Hazards, 79(1), 621–644.

Apergis, N., & Payne, J. E. (2014). The oil curse, institutional quality, and growth in MENA countries: Evidence from time-varying cointegration. Energy Economics, 46, 1–9.

Awodumi, O. B., & Adewuyi, A. O. (2020). The role of non-oil exports, oil exports and oil rents in economic growth: Evidence from Nigeria. Journal of Sustainable Finance & Investment, 10(4), 321–341.

Badeeb, R. A., Lean, H. H., & Clark, J. (2017). The evolution of the natural resource curse thesis: A critical literature survey. Resources Policy, 51, 123–134.

Badeeb, R. A., Lean, H. H., & Clark, J. (2020). The role of financial development in the oil-growth nexus. Resources Policy, 68, 101743.

Baltagi, B. H. (2021). Econometric analysis of panel data. Springer Nature.

Baumeister, C., & Peersman, G. (2013). The role of time-varying price elasticities in accounting for volatility changes in the crude oil market. Journal of Applied Econometrics, 28(7), 1087–1109.

Blomquist, J., & Westerlund, J. (2013). Testing slope homogeneity in large panels with serial correlation. Economics Letters, 121(3), 374–378.

Breusch, T. S., & Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47(1), 239–253.

Chugunov, I., Pasichnyi, M., Koroviy, V., Kaneva, T., & Nikishyna, O. (2021). Fiscal and monetary policy of economic development. European Journal of Sustainable Development, 10(1), 42–56.

Cust, J., & Mihalyi, D. (2017). The evidence suggests that natural resource wealth leads to more autocratic governments. LSE Business Review, 1–5.

Dabachi, U. M., Mahmood, S., Ahmad, A. H., & Ismail, S. (2020). The role of financial development and institutional quality in natural resource extraction and economic growth. Resources Policy, 68, 101739.

Dauda, M., Alege, P. O., & Ewetan, O. O. (2023). Oil revenue and sustainable economic growth in Nigeria: Empirical analysis. International Journal of Energy Economics and Policy, 13(1), 1–10.

Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460.

Elalla, M., Hminnya, F., & Elalla, M. (2022). Natural resources rents and economic performance: Post-COVID-19 era for G7 countries. Resources Policy, 75, 102441.

Gujarati, D. N. (2009). Basic econometrics. McGraw-Hill Education.

Hassan, M. (2021). Oil rents and economic growth in oil-abundant countries: A macroeconomic survey. Energy Economics, 103, 105548.

Hassan, M., Mughal, M., & Suardi, S. (2022). Oil rents and economic growth: Does the role of institutions matter? Energy Policy, 161, 112718.

Hassan, S., Meyer, D., & Olasehinde-Williams, G. (2022). Natural resources and economic growth in Africa: The role of resource funds. Resources Policy, 76, 102563.

International Energy Agency (IEA). (2020). World energy investment 2020. IEA.

Ilala, A., Addai, M., & Osei-Assibey, E. (2022). Oil revenues and public investment in Africa: Evidence from panel data. Resources Policy, 79, 103005.

Lahn, G., & Bradley, P. (2020). The $100 billion per year climate finance goal and how to get there. Chatham House Report.

Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42.

Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631–652.

Muhanji, S., & Ojah, K. (2020). Resource dependence and fiscal policy in Africa: Evidence and implications. Economic Modelling, 91, 563–576.

Muhangi, D., & Ujah, N. (2020). Resource rents and economic development in Africa: The channels of transmission. Resources Policy, 68, 101783.

Okoro, E. O., Okafor, J. O., & Chijindu, V. C. (2021). Oil revenue and infrastructure development in Nigeria. Journal of Economic Policy Research, 16(2), 55–72.

Okunlola, O. C., & Akinlo, A. E. (2022). Oil revenue and economic growth in oil-producing countries: The role of domestic investment. Journal of Sustainable Finance & Investment, 12(2), 372–389.

Olayungbo, D. O., & Olayemi, O. F. (2018). Effects of oil revenue and institutional quality on economic growth with an ARDL approach. Energy & Environment, 29(6), 1017–1037.

Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. Cambridge Working Papers in Economics No. 0435. University of Cambridge.

Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross‐section dependence. Journal of Applied Econometrics, 22(2), 265–312.

Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142(1), 50–93.

Phillips, P. C., & Sul, D. (2003). Dynamic panel estimation and homogeneity testing under cross section dependence. The Econometrics Journal, 6(1), 217–259.

Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002–1037.

Ross, M. L. (2015). The oil curse: How petroleum wealth shapes the development of nations. Princeton University Press.

Sachs, J. D., & Warner, A. M. (2001). The curse of natural resources. European Economic Review, 45(4–6), 827–838.

Safronchuk, M. V., & Sergeeva, E. I. (2019). Diversification of the Russian economy in the context of global instability. Lecture Notes in Networks and Systems, 57, 1073–1081.

Sadeghi, A. (2017). Oil price shocks and economic growth in oil-exporting countries: Does the size of government matter? IMF Working Paper 17/287. International Monetary Fund.

Shili, N., & Panjwani, K. (2020). Non-oil revenue impact on economic growth: Empirical study of Saudi Arabia’s economy. Business and Economic Research, 10(4), 13–25.

Tian, K., Zhang, Y., Li, Y., Ming, X., Jiang, S., & Duan, H. (2021). The resilience of China’s oil industry to supply disruptions: A case study of the 2019 drone attacks on Saudi Arabia. Energy Policy, 155, 112343.

Westerlund, J., & Edgerton, D. L. (2007). A panel bootstrap cointegration test. Economics Letters, 97(3), 185–190.

Wooldridge, J. M. (2016). Introductory econometrics: A modern approach. South-Western Cengage Learning.

World Bank. (2020). The role of fiscal policy in the sustainable and resilient recovery of oil exporting countries. World Bank Group.

World Bank. (2021). World development indicators 2021. The World Bank Group.

World Bank. (2022). World development indicators 2022. The World Bank Group.

Zhou, Y., Wang, X., Dong, R. K., Pu, R., & Yue, X. G. (2022). Natural resources commodity prices volatility: Evidence from COVID-19 for the US economy. Resources Policy, 78, 102895.