Journal of Economics and Financial Analysis, 6 (2), pp. 85-98, [2022]
URI: https://ojs.tripaledu.com/jefa/article/view/78/89

Oil Sector Revenues and the Marginal Propensity to Import: A Focus on Oil-Exporting African Countries


Renaissance University, Nigeria


Novena University, Nigeria


Renaissance University, Nigeria


Enugu State University of Science and Technology, Nigeria


DOI: http://dx.doi.org/10.1991/jefa.v6i2.a56

Abstract

Countries that possess abundant natural resources are often criticized for spending a larger portion of their revenue from selling those resources on imports, as their economies tend to lack diversification. This study aims to examine whether this claim is valid for oil-rich African countries. The paper uses the panel ARDL method to investigate the effect of oil sector revenues on the marginal propensity to import in oil-exporting African countries from 2000-2020. The findings show that in the short run, oil sector revenues do not have a significant impact on the marginal propensity to import. However, in the long run, oil sector revenues have a positive and significant effect on the marginal propensity to import. Additionally, the study reveals that exchange rates have a positive and significant impact on the marginal propensity to import, while the impact of trade openness is negative and significant. Furthermore, gross domestic savings have a negative and significant effect on the marginal propensity to import during the same period. Therefore, the study concludes that increasing oil revenues in the selected countries only resulted in a rise in imports in the long run. It suggests that oil-exporting African countries should save more during periods of rising oil prices as a buffer, and channel these savings towards building facilities that encourage economic growth. It also recommends that exchange rate policies should be used to discourage excessive importation during periods of rising oil prices.

Keywords

Panel ARDL; Marginal propensity to import; Oil rents; Trade openness; Foreign exchange; gross domestic savings.

JEL Classification

C33, F31, O24.

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