The Effects of Oil Price Shocks on Economic Growth of Oil Exporting Countries: A Case of Six OPEC Economies

Abstract

The main objective of this study is to empirically investigate the effects of oil price shocks on economic growth of oil exporting countries. This research examines the impacts of oil price shocks on GDP growth, inflation, investment and the exchange rate of six OPEC economies using annual data from 1980 to 2013. The study uses Augmented Dickey Fuller (ADF) to establish Stationarity of the time series and applies Vector Autoregressive (VARX) model with Ordinary Least Squares (OLS) model to estimate the effects of oil price shocks on economic growth of the six OPEC countries during the research period. The results of the study indicates a statistically significant negative impact of oil shock on GDP growth of Algeria, a statistically significant positive impact of oil price shock on GDP growth of Venezuela, a statistically significant positive impact of oil shock on inflation rate of Iran and a statistically significant negative impact of oil shock on inflation rate of Venezuela, whereas, results for rest of the variables and countries were found statistically insignificant.