Oil prices and agricultural growth in South Africa: A threshold analysis

Abstract

Oil plays a pivotal role in the growth of agriculture as a combustion lubricant for machineries and equipment used in the farming enterprise. Several studies have shown that a relationship exists between oil prices and agricultural growth without clear boundaries beyond which these prices are detrimental to the growth. Therefore, this study is conducted to identify the threshold above which oil prices will adversely affect agricultural growth in South Africa. Real West Texas Intermediate (WTI) and Real Brent crude oil prices in both Dollars and Rands were used as threshold variables in the threshold regression model of agricultural growth. The findings showed that beyond the threshold values of 12.99%, 15.68%, 15.69% and 15.70%, the prices of Real WTI crude oil in Dollars, Real Brent crude oil in Dollars, Real WTI crude oil in Rands and Real Brent crude oil in Rands respectively will have significant negative effects on agricultural growth in South Africa.

Analysis of Interrelationships between Markets of Fuels in the Visegrad Group Countries from 2016 to 2020

“…Aye and Odhiambo [16] used quarterly data from 1980 to 2020 and showed that, beyond the identified threshold values, the WTI and Brent crude oil prices would have significant negative effects on agricultural growth in South Africa. Zakaria et al [17] tried to estimate the impact of oil prices on inflation rates in South Asian countries (Bangladesh, India, Pakistan, Sri Lanka) in the period from 1980 to 2018.…”

“…Examples of studies examining the relationships between crude oil prices and different macroeconomic factors are papers by Kırca et al [15], Aye and Odhiambo [16] or Zakaria et al [17]. Kırca et al [15] investigated the relationship between the oil-gas prices index and economic growth in Turkey in the period 1998-2019.…”

“…The results, based on Granger and the Frequency Domain Causality tests, demonstrated an insignificant causality relationship between the variables, whereas the Toda-Yamamoto causality test with a structural break exhibited a causal relation running from oil-gas to economic growth. Aye and Odhiambo [16] used quarterly data from 1980 to 2020 and showed that, beyond the identified threshold values, the WTI and Brent crude oil prices would have significant negative effects on agricultural growth in South Africa. Zakaria et al [17] tried to estimate the impact of oil prices on inflation rates in South Asian countries (Bangladesh, India, Pakistan, Sri Lanka) in the period from 1980 to 2018.…”

Modeling the dynamics of oil and agricultural commodity price nexus in linear and nonlinear frameworks: A case of emerging economy

“…Understanding the linkage between oil prices and their effects on agricultural commodity prices has been a subject of research among many scholars (Du, Cindy, & Hayes, 2011; Fasanya et al, 2019; Karakotsios et al, 2021; Mokni & Youssef, 2020; Nazlioglu, 2011; Nazlioglu & Soytas, 2012; Rezitis, 2015a; Vacha, Janda, Kristoufek, & Zilberman, 2013; Wang et al, 2013). No specific theories explain the relationship between agricultural commodities and oil prices; however, various empirical studies show the negative implications of higher oil prices on agricultural commodity prices (Aye & Odhiambo, 2021). Oil prices have a significant impact on agricultural commodity prices as oil is considered an important agricultural input that is used for the functioning of machines and equipment and also affects the transportation cost (Sajeev et al, 2018).…”

The relationship between agricultural raw materials and oil price: An empirical analysis

“…The first contribution of this study was that the effect of oil price and real exchange rate on agricultural raw materials prices was examined, and the effect of possible petroleum shocks on agricultural raw materials prices was investigated in this study, which was analyzed using the ARDL method. The second contribution of the study to the literature was the analysis of the relationship between agricultural commodity price and oil price in the literature (Nazlioglu and Soytas, 2012;Rezitis, 2015;Fowowe, 2016;Taghizadeh-Hesary et al, 2019;Aye and Odhiambo, 2021). In this study, it is aimed to add a different dimension to the literature by emphasizing the relationship between agricultural raw materials prices and oil price.…”