The impact of oil price on food security in the Algeria, Iran, and Saudi Arabia: cointegration, vector-error correction model, dynamics, and causality analysis

Ahmad Yazdanpanah

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The geo-political economy of Middle East and North Africa (MENA) countries in general and for oil exporting countries in the region in particular is dominated by three factors: little rain, much oil, and rapidly growing population. With limited agricultural resources, and an historical bias against the agricultural sector the region is unable to produce enough food. Nearly all countries in the region face a food production-consumption gap. Oil export earnings are used not only to finance food imports to close the gap but also to promote self-sufficiency policy;The variation of oil prices, especially since the first oil price shock in 1973/4, has created problems in the national food security of the region. In addition, variation of oil prices impacts the affordability and availability (domestic production and imports) of food;This study examined the influence of oil price shocks on per capita income, food production, food imports, and variation of food consumption (as an indicator of food security) in Algeria, Iran, and Saudi Arabia using a Vector Autoregression (VAR) model. The data covered the period 1960-1991. To explore the impact of variation in oil prices on other variables a forecast error variance decomposition was employed;In the short-run and long-run, the main sources of variation in food availability in Algeria are variation in per capita income and domestic production, while in Iran the main source is food imports, and in Saudi Arabia oil prices and per capita income are the main sources. The study also empirically examined the dynamic impact of a shock in oil prices on the other variables in the national food security system in each country. For instance, the impulse response function for Algeria shows that the response of food consumption to shocks in oil prices is large and the dynamic adjustments are long-lived;The implication of the results could help planners of these countries to better understand food security and help them establish priorities in their national food strategies.

Date: 1994-01-01
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