How Does Algerian Trade Respond to Shocks in Oil Prices and Uncertainty?

Abstract

Oil prices and uncertainties have a direct impact on producers, exporters, governments, and consumers. Therefore, this study investigates the relationship between oil prices, uncertainty, and trade in Algeria from 1990Q1 to 2020Q4. This study primarily built two models: the first model examines how oil prices affect uncertainty and the second model examines how oil prices and uncertainty affect trade. To achieve the objective of the study we applied a novel multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model. The findings confirm that small shocks in oil prices have a negative effect on uncertainty. While medium and large shocks in oil prices increase exports and imports. Finally, we discover that uncertainty has no significant effect on exports, while medium and large shocks in uncertainty reduce imports. Overall, the findings support the existence of an asymmetric relationship between oil prices, uncertainty, and trade. The decision-makers should consider preparing for remedial reforms and a peaceful transition from a mono-export to a diversified economy.