Oil Price Uncertainty, Globalization, and Total Factor Productivity: Evidence from the European Union

Abstract

This paper uncovers linkages between oil price uncertainty, total factor productivity (TFP) growth, and critical indicators of knowledge production and spillovers. It contributes to the literature by investigating the effects of oil price volatility on TFP growth, controlling for two different channels for TFP growth; benefits from the quality of the national innovation system and from adopting new technologies. We use an unbalanced panel for 28 European Union countries for the period from 1990 to 2018. We find that oil price uncertainty has a negative and statistically significant effect on TFP growth, even after we control for technological advancements and the effects of globalization. We also find that the scale of research and innovation and international trade are positive contributors to TFP growth.

Exploring the Relationship between Crude Oil Prices and Renewable Energy Production: Evidence from the USA

“…The study of Balashova and Serletis shows that oil price volatility, estimated using the GARCH-M(1,1) model, constrains TFP growth in both "old" and "new" EU countries, slowing down the pace of innovation and investment activity [17].…”

Modeling oil price uncertainty effects on economic growth in Mexico: a sector-level analysis

“…In the study of the macroeconomic effects coming from oil price uncertainty, the theory of real options or the theory of investment under uncertainty is common ground. This theory posits that companies are likely to delay irreversible investment decisions when there is uncertainty about the price of oil, especially when the cash flow of investments depends on the price of oil (Bernanke 1983 ; Pindyck 1991 ; Elder and Serletis 2009 ; Balashova and Serletis 2021 ). In this context, oil price uncertainty, defined as an unforeseen change in the future price, influences the company’s expectations about current production and investment decisions.…”

Emerging Trends in Energy Economics

“…Chen and Rehman in [3] identify the critical periods in the trading of energy-related commodities employing an unsupervised Machine Learning framework. Balashova and Serletis in [4] uncover hidden linkages between the oil price uncertainty, the total factor productivity (TFP) growth, and the critical indicators of knowledge production and associated spillovers. Christopoulos et al in [5] investigated the effect that the COVID-19 pandemic and the stock market volatility have on oil price volatility.…”