Comparative Analysis of the Impact of Oil Price Shocks on Selected Macroeconomic Variables in Angola and Libya

Abstract

Purpose: This study comparatively examines the impact of oil price shocks on five selected macroeconomic variables in two African oil-producing countries, Angola and Libya, using secondary data from 1983 to 2021. Materials and Methods: We adopted a causal-comparative/Quasi-Experimental research design to infer cause-and-effect relationships. The structural vector error correction model (SVECM) was employed due to the advantage of cointegrated variables in both countries. Findings: The empirical analysis reveals that the response to and significance of oil price shocks are somewhat similar in the two countries, with a significant positive and persistent effect on oil prices and real economic output. However, other macro variables responded insignificantly to oil price shocks, albeit with varying signs. Based on the empirical analysis, we conclude that while oil price shocks have a significant and lasting positive impact on oil prices and real economic output in both countries studied, their influence on other macroeconomic variables is relatively insignificant, though these variables exhibit varying responses. Hence, to mitigate the risks associated with oil price shocks and reduce dependency on oil revenues, we recommend that Angola and Libya diversify their economies by investing in non-oil sectors such as agriculture, manufacturing, tourism, and renewable energy. Implications to Theory, Practice and Policy: Furthermore, we recommend the implementation of macroeconomic stabilization policies to reduce vulnerability to oil price shocks. Fiscal measures, such as establishing sovereign wealth funds to save excess oil revenues during high oil price periods, can stabilize the economy during low oil price periods. Monetary policies, including interest rate adjustments, can counteract inflationary or deflationary pressures resulting from oil price shocks.