Threshold Effects of Oil Price and Oil Export on Trade Balance in Africa

Abstract

The impact of various macroeconomics variables on trade deficit has been studied in large OPEC (e.g., United Arab Emirates and Kingdom of Saudi Arabia); however other African countries are still needed to be studied. This study uses the transmission oil price (OP) changes to various economic sectors to examine the threshold effects of OP and oil export on trade balance in African OPEC members (Algeria, Angola, Libya and Nigeria). This study applied Pedroni cointegration test to establish the cointegration relationship among different macroeconomics variables by using three different proxies of OP. The dynamic panel models were used to examine the long-run impact of OP changes and threshold analysis. The study found that increase in OP and oil export positively encouraged import while exchange rate depreciation is significantly discouraged import. The study found that the threshold effect of oil export on the trade balance, when oil export is above a certain threshold, the impact is higher than below threshold. The aforementioned countries have to take into account that there is a threshold level and can increase oil export to improve the trade balance.

Exploring the Asymmetrical Influence of Economic Growth, Oil Price, Consumer Price Index and Industrial Production on the Trade Deficit in China

“…The influence of oil prices on the balance of trade in 34 states was studied through the PMG ARDL model. Bala, et al [26] scrutinized the threshold influence of oil prices and export prices on trade deficits in African states associated with OPEC by using a dynamic panel model. Mesagan, et al [27] explored the dynamic influence of the exchange rate on the trade deficit asymmetrically in South Africa through the NARDL model.…”