Analysis of the Impact of Crude Oil Price Changes on Economic Growth in Tanzania: ARDL Econometric Model

Seth Kenedi Mbwambo; Ephrahim Welnery Mchukwa; Zena Babu Mchomvu

doi:10.51867/scimundi.4.2.2

Authors

Seth Kenedi Mbwambo Moshi Cooperative University (MoCU), P.O Box 474, Moshi, Tanzania https://orcid.org/0009-0008-6163-795X
Ephrahim Welnery Mchukwa Moshi Cooperative University (MoCU), P.O Box 474, Moshi, Tanzania https://orcid.org/0009-0000-4451-0844
Zena Babu Mchomvu Moshi Cooperative University (MoCU), P.O Box 474, Moshi, Tanzania https://orcid.org/0009-0003-0276-7504

DOI:

https://doi.org/10.51867/scimundi.4.2.2

Keywords:

ARDL, Crude Oil Price, Economic Growth, Tanzania

Abstract

Crude oil is a valuable resource for boosting global economic growth. In this regard, this study examined the effect of crude oil price fluctuations on Tanzania’s economic growth from 1989 to 2022. Empirically this study utilized time-series data extracted from World Bank in particular, GDP per capital from World Development Indicators (WDI) as proxy of economic growth and Statistical Review of World Energy for Crude Oil prices. In this study, Renaissance growth theory, Autoregressive distributed lag model (ARDL), Dickey and Fuller tests, The Johansen test for cointegration, Breusch- Godfrey test for Serial correlation LM, Breusch-Pagan heteroscedasticity test, Jarque-Bera normality test, Error Correction Model (ECM), Granger Causality test, CUSUM and CUSUMSQ curves tests were used to analyse the data. This study revealed that crude oil price changes have positive and significant impact on Tanzania’s economic growth. A dollar increase in crude oil prices brings about 0.232791unit increase Tanzania’s economic upturn in the short run. The ARDL results also shows that error correction model (ECM) of -0.1000 (p= 0.0025) is significant with its value, suggesting a moderate speed of convergence to equilibrium after shock. Thus, this study recommends to policy maker and the government to ensure that they use fiscal policies that will reduce the adverse impact of the world crude oil prices hikes, finding other sources of energy and promoting research and development to explore and harness the oil fossils to produce oil and reduce oil importations and increase oil exportations to further increase economic growth.

Downloads

Download data is not yet available.

References

Adam, P., & Pasrun, Y. P. O. (2021). Effects of Crude Oil Prices Volatility , the Internet and Inflation on Economic Growth in ASEAN-5 Countries : A Panel Autoregressive Distributed Lag Approach. International Journal of Energy Economics and Policy, 11(1), 15-21. https://doi.org/10.32479/ijeep.10395 DOI: https://doi.org/10.32479/ijeep.10395

African Energy Chamber. (2023). The State of African Energy 2023 Outlook. African Energy Chamber.

Ali, K., Ali, S., & Kiran, A. (2017). Crude Oil Prices and Its Effect on Economic Growth ; Analyzing Pre and Post Oil Prices Shocks : A Case Study of Pakistan Economy Oil Prices Since 1986-2015. Journal of Energy Technologies and Policy, 7(3), 2013-2018.

Anthony, N. (2020). Global Oil Price Shocks and Effects on Economic Growth : An Econometric Investigation of Nigeria. International Journal of Innovation and Economic Development, 6(4), 7-26. https://doi.org/10.18775/ijied.1849-7551-7020.2015.64.2001

https://doi.org/10.18775/ijied.1849-7551-7020.2015.64.2001 DOI: https://doi.org/10.18775/ijied.1849-7551-7020.2015.64.2001

Awunyo-vitor, D., Samanhyia, S., Bonney, E. A., Awunyo-vitor, D., Samanhyia, S., & Bonney, E. A. (2018). Do oil prices influence economic growth in Ghana ? An empirical analysis. Cogent Economics & Finance, 6(1), 1-14. https://doi.org/10.1080/23322039.2018.1496551

https://doi.org/10.1080/23322039.2018.1496551 DOI: https://doi.org/10.1080/23322039.2018.1496551

Berument, M. H., Ceylan, N. B., & Dogan, N. (2010). The Impact of Oil Price Shocks on the Economic Growth of Selected MENA 1 Countries. The Energy Journal, 31(1), 149-176. https://doi.org/10.5547/ISSN0195-6574-EJ-Vol31-No1-7 DOI: https://doi.org/10.5547/ISSN0195-6574-EJ-Vol31-No1-7

Benli, M., Altıntaş, H., & Kaplan, M. (2016). Asymmetric effect of oil prices on economic growth: Evidence from Turkey. In Proceedings of the International Congress of Management Economy and Policy (pp. 2767–2778). Istanbul, Turkey.

Brucal, A., & Roberts, M. J. (2018). Not all regions are alike: Evaluating the effect of oil price shocks on local and aggregate economies (Working Papers 2018-4). University of Hawaii Economic Research Organization, University of Hawaii at Manoa.

Dinh, D. Van. (2022). Crude Oil Price Fluctuation and Economic Growth : A RDL Model Approach. International Journal of Energy Economics and Po, 12(4), 240-248. https://doi.org/https://doi.org/10.32479/ijeep.13177 DOI: https://doi.org/10.32479/ijeep.13177

Ftiti, Z., Guesmi, K., & Chouachi, S. (2016). Relationship Between Crude Oil Prices And Economic Growth In Selected OPEC Countries. The Journal of Applied Business Research, 32(1), 11-22. https://doi.org/10.19030/jabr.v32i1.9483 DOI: https://doi.org/10.19030/jabr.v32i1.9483

Gasper, L., & Mbwambo, H. (2023). Forecasting Crude Oil Prices By Using ARIMA Model: Evidence From Tanzania. Journal of Accounting, Finance and Auditing Studies, 10(32602), 158-175. https://doi.org/10.32602/jafas.2023.017 DOI: https://doi.org/10.32602/jafas.2023.017

International Energy Agency (IEA). (2023). World Energy Outlook 2023. International Energy Agency. https://www.iea.org/reports/world-energy-outlook-2023

Kibunyi, A., C, C., & Wanjala, K. (2018). Effect of Crude Oil Prices on GDP Growth and Selected Macroeconomic Variables in Kenya. Journal of Economics and Business, 1(3), 282-298. https://doi.org/10.31014/aior.1992.01.03.27

Mhamad, S. H., & Saeed, S. T. (2016). The Impact of Oil Price on Economic Growth : Empirical Evidence from Iraq. Journal of Economics and Sustainable Development, 7(14), 156-161. https://doi.org/ISSN 2222-1700 (Paper)

Msafiri, A., & Yurievich, A. (2018). Correlation of oil prices and gross domestic product in oil producing countries. International Journal of Energy Economics and Policy, 8(5), 42-48.

Muthalib, A. A., Adam, P., Nur, M., Saenong, Z., Suriadi, L. O., & Baso, J. N. (2019). The Effect of Crude Oil Prices on Inflation , Interest Rates and Economic Growth in Indonesia. International Journal of Energy Economics and Policy, 9(5), 14-19. https://doi.org/10.32479/ijeep.7829 DOI: https://doi.org/10.32479/ijeep.7829

Nwanna, I., & Ayenajeh Eyedayi. (2016). Impact of Crude Oil Price Volatility on Economic Growth in. Journal of Business and Management (IOSR-JBM), 18(6), 10-19. https://doi.org/10.9790/487X-1806011019

Odhiambo, N. M., & Nyasha, S. (2019). Oil price and economic growth in kenya: A trivariate simulation. International Journal of Sustainable Energy Planning and Management, 19(2), 3-12. https://doi.org/10.5278/ijsepm.2019.19.2

Ogboru, I., Rivi, M. T., & Idisi, P. (2017). The Impact of Changes in Crude Oil Prices on Economic Growth in Nigeria : 1986 - 2015. Journal of Economics and Sustainable Development, 8(12), 78-89.

Oriakhi, D. E., & Osaze, I. (2013). Oil Price Volatility and its Consequences on The Growth of the Nigerian Economy: An Examination (1970-2010). Asian Economic and Financial Review, 3(5), 683-702.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. https://doi.org/10.1002/jae.616 DOI: https://doi.org/10.1002/jae.616

Rumbia, W. A., & Azis, A. (2020). Crude oil prices , household spending and economic growth in the ASEAN-4 region : an analysis of nonlinear panel autoregressive distributed lag Crude Oil Prices , Household Spending and Economic Growth in the ASEAN-4 Region : An Analysis of Nonlinear Pane. International Journal of Energy Economics and Policy, 10(4), 437-422. https://doi.org/10.32479/ijeep.9293. DOI: https://doi.org/10.32479/ijeep.9293

Said, S. E., & Dickey, D. A. (1984). Testing for unit roots in autoregressive-moving average models of unknown order. Biometrika, 71(3), 599-607. https://doi.org/10.1093/biomet/71.3.599 DOI: https://doi.org/10.1093/biomet/71.3.599

Smets, F., & Wouters, R. (2007). Shocks and frictions in US business cycles: A Bayesian DSGE approach. American Economic Review, 97(3), 586-606.

https://doi.org/10.1257/aer.97.3.586 DOI: https://doi.org/10.1257/aer.97.3.586

Stiglitz, J. E. (1989). Imperfect information in the product market. In R. Schmalensee & R. D. Willig (Eds.), Handbook of Industrial Organization: Vol. I (pp. 769-847). Elsevier Science Publishers B.V. https://doi.org/10.1016/S1573-448X(89)01016-2 DOI: https://doi.org/10.1016/S1573-448X(89)01016-2

Utouh, H., Mchukwa, E., & Tibuhinda, R. (2024). The Effects of Foreign Direct Investment on Economic Growth (Gross Domestic Product) in Tanzania. Economic Insights - Trends and Challenges, 2024(2), 89-100. https://doi.org/10.51865/eitc.2024.02.07 DOI: https://doi.org/10.51865/EITC.2024.02.07