The Effects of Oil Price Volatility on the Economic Sectors of Libya

Abstract

Fluctuations in oil price and its impact on economic development is an important issue facing a growing number of world economies. A simple changes in oil prices lead to negative or positive effects on all the economic sectors. This paper seeks to investigate the impact of oil price volatility on economic sectors in the Libyan economy context on the basis of annual data spanning from 1968-2012. The Johansen based Co-integration technique is applied to examine the sensitivity of economic sectors to volatility in oil prices in the long-run. And the short-run relationship is tested by Vector Error Correction Model. Through examining the results, that there is a long-term relationship of oil prices on the agriculture, construction, manufacturing and transport sectors. Finally, this study concludes that increases in oil price did not significantly affect the manufacturing sector in aggregate terms. Moreover, the negative impact on the sector of manufacturing and agriculture. Thus, this study has a significant impact in the Libyan economy in policy development on oil prices. The Libyan government needs to control the price to make sure that price volatility will not harm the manufacturing, agriculture, construction and transport sectors.

The Dynamics of Oil Prices in the Nigerian Construction and Economic Growth

“…A wide range of empirical and theoretical studies have been done on the influence of the oil price change on the economic growth both in the developed and developing countries including Nigeria [1,11,14,27,[29][30][31]33,34,[36][37][38][41][42][43][44][45][46][47][48][49][50]. However, the results of these studies are mixed and conflicting.…”

“…While some claim that oil price fluctuation exerts adverse impact on macroeconomic variables [1,[7][8][9][10][11]; others found that crude oil price fluctuation exert positive influence on the economic growth [16,37,48,50]. Still, some others argue that the effects are less disruptive and also not as significant as thought since oil is becoming less relevant in the economic equation of many countries in the recent time [19,36,[51][52][53][54][55], while others found that the effect is asymmetric and there is no clear effect of oil price changes on the economic growth [41,[56][57][58][59] since the impact of oil price fluctuations is considered to be different for oil importing and exporting countries [48].…”

“…Unfortunately, studies focusing on the influence of oil prices on the construction sector are sparse and limited. The few available literatures are superficial and lacked consensus despite the construction sector's central role in the economic development of every nation especially in the developing countries [33,36,39,[60][61][62][63][64].…”

“…The study also shows that the construction sector was found to be dependent on oil prices. A similar study by Aimer [36] investigates the impact of oil price volatility on economic sectors in the Libyan economy. The result concurred with Shaari, et al [33] but is contrary to that of Khan, et al [62].…”

“…There is no doubt the influential capacity of oil prices on the overall economic growth of every nation because available literature [26][27][28][29][30][31][32][33][34] have shown that oil price fluctuation influence all sectors of the economy including construction; either negatively or positively. Particularly, as the forces of supply and demand among other factors in the global oil market affect the oil prices fluctuation which sometimes makes the price of oil very volatile [3,[34][35][36][37]; Igberaese [38] argues that global oil prices are the most important external economic factor affecting the Nigerian economy. Complementing, Akomolafe and Jonathan [39] state that when there is significant fluctuation in the international price of crude oil, the Nigerian economy is wrecked by series of instabilities due to the economy's overreliance on the oil sector.…”