THE TRANSMISSION OF OIL PRICE SHOCKS TO GDP: A VECTOR AUTOREGRESSION ANALYSIS OF SELECT AFRICAN ECONOMIES BY OIL DEPENDENCY LEVELS

Abstract

This study examines the transmission mechanisms of oil price shocks to GDP growth across four African economies with varying levels of oil dependency: Angola (95%), Nigeria (80%), Gabon (70%), and Ghana (30%). Using quarterly data and employing both Vector Autoregression with Exogenous Variables (VARX) and Structural Vector Autoregression (SVAR) methodologies, I analyze how oil export revenue shocks propagate through each economy. I find a non-linear relationship between oil dependency and macroeconomic vulnerability, with disproportionately greater vulnerability at extreme dependency levels. The transmission mechanisms differ qualitatively across the dependency spectrum, with highly dependent economies exhibiting more complex dynamics including potential negative feedback effects, while less dependent economies show more stable positive responses. Monetary transmission channels play a crucial role, as oil shocks in highly dependent economies generate substantial monetary expansion and inflationary pressures that often overwhelm conventional monetary frameworks. Institutional factors and economic structures significantly moderate the dependency-vulnerability relationship, helping explain why countries with similar dependency levels may experience substantially different outcomes. The findings suggest graduated policy approaches to managing oil dependency, with implications for diversification strategies, monetary policy frameworks, and fiscal management tailored to specific dependency levels.