Do institutions matter for oil prices and economic growth relationship?: A regulatory policy implication

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

This study empirically investigates the moderating effect of institutional quality on the oil price-economic growth relationship among selected African oil-importing economies for a thirty-year period from 1990 to 2020. The study employs a panel autoregressive distributed lag (PARDL) model using a pooled mean group estimator (PMG) with oil price and institutional quality as the main variables. Results from the analyses indicate that oil price increase has a negative effect on economic growth in oil-importing countries and these results are consistent with the previous findings by Kudabayeva et al. (2024) amongst others. Moreover, the study established a positive and significant effect of institutional quality on economic growth. The positive and significant effect of the interaction term between oil price and institutional quality suggests that better quality institutions are critical for moderating the negative effects of oil price changes on economic growth, consistent with findings by Abdelsalam (2023). The findings from this study suggest that net oil importers should focus on eliminating dependency on oil energy and promote investment into alternative non-petroleum renewable energy sources for sustainable development. Policy reforms should focus on strengthening of robust institutions to mitigate the effects of oil price shocks and promote the growth prospects of African countries.

Keywords: Oil Price, Economic Growth, Institutional Quality, Panel Autoregressive Distributed Lag, Pooled Mean Group Estimator, Oil-Importing Economies

Authors’ individual contribution: Conceptualization — L.T.M. and G.G.; Methodology — L.T.M.; Formal Analysis — L.T.M. and G.G.; Investigation — L.T.M.; Writing — L.T.M. and G.G.; Visualization — L.T.M. and G.G.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C23, E020, Q43

Received: 08.02.2024
Accepted: 14.10.2024
Published online: 16.10.2024

How to cite this paper: Musikavanhu, L. T., & Gamariel, G. (2024). Do institutions matter for oil prices and economic growth relationship?: A regulatory policy implication. Journal of Governance & Regulation, 13(4), 132–143. https://doi.org/10.22495/jgrv13i4art13