Vol. 16, Issue 1, Jul-Dec 2023

Page: 103-111

Economic Diversification Strategies and Their Role in Mitigating the Impacts of Oil Price Fluctuations in OPEC Member Countries

Muqdad Zaki Hammed Banana

Received Date:

Accepted Date:

Published Date:

This study examines the effect of changes in international crude oil price on the selected OPEC member countries choosing the important macroeconomic variables such as GDP, inflation rate and unemployment rate. Considering that most OPEC countries highly rely on oil export, it is important to have an understanding of how these prices affect such economy for the planner and policy makers. To test the variables, both short-run and long-run co-integration, the study adopts both the ARDL and the VAR with the time series data of 1990-2023. While proving the general results about oil price shocks, the paper also uncovers the variation in the intensity of shocks depending on the country in the OPEC and their impacts: the specially vulnerable countries, which would lose much more in terms of GDP and inflation, are represented by such countries as Venezuela and Nigeria. On the other hand, Saudi Arabia, its economy is rather more diversified, shows a much richer reaction to changes in oil prices. The estimate of impulse response functions reveals that oil price shocks adversely affect and persistently impact economic performance of countries with differing severity. Variance decomposition analysis also shows that OPI is the most important determinant in the variable of GDP growth in oil-exporting countries and thus showing how these countries are vulnerable to oil price shocks.

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