The Macroeconomic Effect of Oil Sector Crisis in Libya
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Feb 20, 2024
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Abstract
This paper analyses and investigates the impact of the oil sector crisis on the Libyan economy from 2012 Q4 to 2022 Q3, using the Bai-Perron model and a structural vector autoregressive model (SVAR). The findings demonstrate that the multiple structural breaks test statistics approved that nearly all of the study's variables had a structural break at years around political division and political agreement. In contrast to inflation, the results of the impulse response functions (IRFs) indicate that the shock to oil revenue had a considerable negative impact on the money supply and exchange rate. Furthermore, the study reveals that, with the exception of claims on the government with the central bank, shocks to oil revenue are the major contributors to variance decomposition for all variables. The results reveal that oil revenue, in particular, accounts for roughly 16%, 13%, and 16% of the variance decomposition of the money supply, exchange rate, and inflation rate, respectively. As a result, the oil sector crisis is a controlling factor in the explanation of variations in these variables. The study concluded that oil sector revenues have a sensitive impact on the Libyan economy and that the latter has a strong tide with a secure environment and political stability.
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Keywords
Oil Sector CrisisMultiple BreakpointsStructural VARLibya
References
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• Al-shammari, H. A., Al-bakri, J. K. and Sinan, S. (2020). The Impact of Oil Price Shocks on the Iraq Economy – a Case Study for the Period 1990-2018. International Journal of Innovation, Creativity and Change, 12(10), 446–461.
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• Bai, J., and Perron, P. (1998). Estimating and testing linear models with multiple structural changes. Econometrica, 66(1), 47-78
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• Bai, J., and Perron, P. (2003). Computation and analysis of multiple structural change models. Journal of applied econometrics, 18(1), 1-22.
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• Kilian L., Rebucci A. and Spatafora N. (2009). Oil shocks and external balances. Journal of international Economics, 77(2), 181–194.
• Le, T. H. Chang, Y. (2013). Oil price shocks and trade imbalances. Energy Economics, 36, 78-96.
• Libyan Audit Bureau (LAB). (2021). Annual Report for 2020. General National Congress (GNC). April 2021. Libya. https://www.audit.gov.ly/ar/reports/
• Lütkepohl H. (2005). New Introduction to Multiple Time Series Analysis. Ed. Springer-Verlag Berlin Heidelberg.
• Mehrara, M. and Mohaghegh, M. (2011). Macroeconomic Dynamics in the Oil Exporting Countries: A Panel VAR study. International Journal of Business and Social Science, 2(21), 288–296.
• Moshiri, S. (2015). Asymmetric effects of oil price shocks in oil-exporting countries: the role of institutions. OPEC Energy Review, 39(2), 222–246.
• Nasir, M. A., Al-Emadi, A. A., Shahbaz, M. and Hammoudeh, S. (2019). Importance of oil shocks and the GCC macroeconomy: A structural VAR analysis. Resources Policy, 61, 166–179.
• Ogunsakin, S and Oloruntuyi, A. O. (2017). Oil Price Volatility and Macroeconomic Performance in Two Top Net Oil Production Countries in Africa. Int. Eco. Res, 8(3), 59–79.
• Park, J., Ratti, R.A. (2008). Oil price shocks and stock markets in the U.S. and 13 European countries. Energy Econ. 30, 2587–2608.
• Rafiq, S., Sgro, P. Apergis, A. (2016). Asymmetric Oil shocks and external balances of major oil exporting and importing countries, Energy Economics, 56, 42-50.
• Ramos, S. and Vegia, H. (2013). Oil price asymmetric effects: Answering the puzzle in international stock markets, Energy Economics, 38, 136-145.
• Roberto, A., Santis, D. and Veken, W. V. (2022). Deflationary financial shocks and inflationary uncertainty shocks: an SVAR investigation. The European Central Bank (ECB), Working Paper Series, No 2727, September 2022. https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2727~a82f405ead.en.pdf
• Samargandi, N. and Sohag, K. (2022) Oil Price Shocks to Foreign Assets and Liabilities in Saudi Arabia under Pegged Exchange Rate. Mathematics, 10, 4752, 1-15. https://doi.org/10.3390/math10244752
• Sek, S.K. (2017), Impact of oil price changes on domestic price inflation at disaggregated levels: Evidence from linear and nonlinear ARDL modelling, Energy, 130, 204-217.
• Hasen Ben Taher is currently an Associate Professor of Economics at the Faculty of Economics and Political Science, University of Tripoli, Libya. He received a Ph.D. in Economics (applied econometrics) in 2010 from Liverpool John Moores University, UK. His primary research interests are in the fields of economics and finance, with an emphasis on micro- and macroeconomics and the public budget. More generally, he has empirical research covering the applied sub-fields of public finance management (PFM): public expenditure, public revenue, and economic policies. He also has an interest in public investment management (PIM), which is his doctoral field.
• Abdlaziz, R. A. (2019). Impact of Oil Revenue on Economic Growth, Agriculture, and Tourism Sectors of Developing Oil Exports Countries. Universiti Putra Malaysia. http://psasir.upm.edu.my/id/eprint/83090
• Agren, M., (2006). Does Oil Price Uncertainty Transmit to Stock Markets?. Department of Economics, Uppsala University Working paper, 2006. 23.
• Ahmad, A. H., and Masan, S. (2015). Dynamic relationships between oil revenue, government spending and economic growth in Oman. International Journal of Business and Economic Development, 3(2), 93–116.
• Alexandra, C. (2022). The impact of external shocks on economic growth: An empirical study based on the SVAR models. Proceedings of the International Conference on Business Excellence. Sciendo, 16(1), 650-659.
• Aliyu, S. U. R. (2009). Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation. Research Journal of International Studies, (11), 4-15.
• Al-shammari, H. A., Al-bakri, J. K. and Sinan, S. (2020). The Impact of Oil Price Shocks on the Iraq Economy – a Case Study for the Period 1990-2018. International Journal of Innovation, Creativity and Change, 12(10), 446–461.
• Amisano, G. and Giannini, C. (1997). From VAR Models to Structural VAR Models. Topics in Structural VAR Econometrics, (pp. 1-28). Springer, Berlin, Heidelberg
• Bai, J., and Perron, P. (1998). Estimating and testing linear models with multiple structural changes. Econometrica, 66(1), 47-78
• Babecký, J., Havránek, T., Matějů, J., Rusnák, M., Šmídková, K and Vašíček, B. (2014). Banking, debt, and currency crises in developed countries: Stylized facts and early warning indicators. Journal of Financial Stability, 15, 1-17.
• Bai, J. (1997). Estimating multiple breaks one at a time. Econometric Theory, 13(03), 315-352.
• Bai, J., and Perron, P. (2003). Computation and analysis of multiple structural change models. Journal of applied econometrics, 18(1), 1-22.
• Benameur, A. G., Belarbi, Y. and Toumache, R. (2020). The macroeconomic effects of oil prices fluctuations in Algeria: a SVAR approach. Les Cahiers du Cread, 36(3), 59-82.
• Benlagha, N. and Charfeddine, L. (2021). Analysis of The effect of The European Debt Crisis on The Saudi Arabian Economy. Journal of Studies in Business and Economics, 24(1), 62-85.
• BenMabrouk, H. and HadjMohamed, W. | (2022). Oil shocks and the volatility of BRICS and G7 markets: SVAR analysis. Cogent Economics & Finance, 10:1, 2068241, DOI: 10.1080/23322039.2022.2068241
• Ben-Taher, H. A. (2021). A Theoretical Analysis of Money Supply for Libya. Āfāqiqtiṣādiyyaẗ Journal, 7(14), 20 – 41
• Ben-Taher, H. A. and Hamoda, A. M. (2022). The Use of the ARDL Approach in Estimating the Relationship between Money Supply and Exchange Rate in Libya. Journal Humanities and Social Sciences, 23, 69-91.
• Bobeica, E. and Hartwig, B. (2021). The COVID-19 shock and challenges for time series models. The European Central Bank (ECB), Working Paper Series, No 2558, May 2021, https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2558~22b223a7c6.en.pdf
• Bolaño- Bolaños, A. G. (2014). External vulnerabilities and economic integration. Is the Union of South American Nations a promising project? Journal of Economic development, 39(2), 97-131.
• Breitung, J., Brüggemann, R. and Lütkepohl, H. (2004). Structural Vector Autoregressive Modeling and Impulse Responses. Applied Time Series Econometrics.
• Central Bank of Libya. (2022). Economic Bulletin: Q3, 62(3), Libya. Central Bank of Libya. https://cbl.gov.ly
• Central Bank of Libya. (2022). Quarterly statement on revenue and expenditure for 2022. CBL. https://cbl.gov.ly/wp-content/uploads/2023/01/Official-Statement-Dec-2022-2-1.pdf
• Chellai, F. (2021). What Can SVAR Models tell us About the Impact of Public Expenditure Shocks on Macroeconomic Variables in Algeria? A Slight Hint to the COVID-19 Pandemic. Folia Oeconomica Stetinensia, 21(2), 21-37.
• Farzanegan, M., R. (2011) Oil revenue shocks and government spending behavior in Iran. Energy Economics, 33(6), 1055-1069
• Kilian, L. (2009) Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market. American Economic Review 99, 1053-1069.
• Kilian L., Rebucci A. and Spatafora N. (2009). Oil shocks and external balances. Journal of international Economics, 77(2), 181–194.
• Le, T. H. Chang, Y. (2013). Oil price shocks and trade imbalances. Energy Economics, 36, 78-96.
• Libyan Audit Bureau (LAB). (2021). Annual Report for 2020. General National Congress (GNC). April 2021. Libya. https://www.audit.gov.ly/ar/reports/
• Lütkepohl H. (2005). New Introduction to Multiple Time Series Analysis. Ed. Springer-Verlag Berlin Heidelberg.
• Mehrara, M. and Mohaghegh, M. (2011). Macroeconomic Dynamics in the Oil Exporting Countries: A Panel VAR study. International Journal of Business and Social Science, 2(21), 288–296.
• Moshiri, S. (2015). Asymmetric effects of oil price shocks in oil-exporting countries: the role of institutions. OPEC Energy Review, 39(2), 222–246.
• Nasir, M. A., Al-Emadi, A. A., Shahbaz, M. and Hammoudeh, S. (2019). Importance of oil shocks and the GCC macroeconomy: A structural VAR analysis. Resources Policy, 61, 166–179.
• Ogunsakin, S and Oloruntuyi, A. O. (2017). Oil Price Volatility and Macroeconomic Performance in Two Top Net Oil Production Countries in Africa. Int. Eco. Res, 8(3), 59–79.
• Park, J., Ratti, R.A. (2008). Oil price shocks and stock markets in the U.S. and 13 European countries. Energy Econ. 30, 2587–2608.
• Rafiq, S., Sgro, P. Apergis, A. (2016). Asymmetric Oil shocks and external balances of major oil exporting and importing countries, Energy Economics, 56, 42-50.
• Ramos, S. and Vegia, H. (2013). Oil price asymmetric effects: Answering the puzzle in international stock markets, Energy Economics, 38, 136-145.
• Roberto, A., Santis, D. and Veken, W. V. (2022). Deflationary financial shocks and inflationary uncertainty shocks: an SVAR investigation. The European Central Bank (ECB), Working Paper Series, No 2727, September 2022. https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2727~a82f405ead.en.pdf
• Samargandi, N. and Sohag, K. (2022) Oil Price Shocks to Foreign Assets and Liabilities in Saudi Arabia under Pegged Exchange Rate. Mathematics, 10, 4752, 1-15. https://doi.org/10.3390/math10244752
• Sek, S.K. (2017), Impact of oil price changes on domestic price inflation at disaggregated levels: Evidence from linear and nonlinear ARDL modelling, Energy, 130, 204-217.
• Hasen Ben Taher is currently an Associate Professor of Economics at the Faculty of Economics and Political Science, University of Tripoli, Libya. He received a Ph.D. in Economics (applied econometrics) in 2010 from Liverpool John Moores University, UK. His primary research interests are in the fields of economics and finance, with an emphasis on micro- and macroeconomics and the public budget. More generally, he has empirical research covering the applied sub-fields of public finance management (PFM): public expenditure, public revenue, and economic policies. He also has an interest in public investment management (PIM), which is his doctoral field.
How to Cite
Ben-Taher, Hasen A. 2024. “The Macroeconomic Effect of Oil Sector Crisis in Libya”. Studies in Business and Economics 27 (1):22-43. https://doi.org/10.29117/sbe.2024.0147.
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