Effects of oil price shocks on economic sectors of net oil-importing countries: case of Togo

Léleng Kebalo ()
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Léleng Kebalo: University of Lome

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Abstract: Less analyzed, the impact of world oil prices on the economy of net oil-importing countries is becoming more significant due to the increase in oil consumption. This paper analyzes the linear and the nonlinear impact of world oil price on Togo's economic sectors based on annual time series from 1970 to 2017, using an unrestricted vector autoregressive (VAR) model. With the linear impact model, the results show that the world oil price shock does not affect the value-added of the economic sectors. As expected, Togo's economic sectors fail to affect the world oil price markets, which confirms that Togo, a small net oil-importing country, has no pricing power in the world oil markets. However, by using the VAR asymmetric impact model proposed by Mork (1989), we find that the impact of world oil price on economic sectors is nonlinear. Thus, positive changes in world oil price do not affect the value-added of economic sectors considered while the negative changes in oil price contribute to improve significantly the value-added of primary and secondary sectors, but not the tertiary sector. Finally, our analysis shows that the value-added of primary and secondary sectors affect respectively the value-added of the tertiary sector. The inverse is not true. This paper recommends that Togo must seek to take benefit from all negative changes in world oil price for boosting the value-added of their economic sectors.

Date: 2020-10-12
New Economics Papers: this item is included in nep-cwa and nep-ene
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Published in Economics Bulletin, 2020, 40 (4), pp.2689-2703

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