Industrial development in Africa: The role of energy price volatility

Abstract

This study examines the impact of energy price volatility on industrialization in 39 sub-Saharan African economies between 2001 and 2023. The study utilizes two measures of energy price volatility: the standard deviation of energy price inflation and the standard deviation of the residuals of energy price inflation from an autoregressive process. Using the Ordinary Least Squares, Fixed Effects, Quantile Regression, and the System Generalized Method of Moments as estimation strategies, the result revealed that irrespective of the measure of energy price volatility, an increase in energy price volatility reduces both manufacturing and industry growth. Countries with lower initial manufacturing growth are more adversely affected, while those with high industry growth experience greater volatility impacts. Interestingly, where manufacturing growth is high, volatility may increase growth rates. The findings are robust to cross-sectional dependence, unobservable heterogeneity, and endogeneity. Policy recommendations are discussed.