The Effect of Energy, Oil Price and Inflation on Output Growth in Africa: A Tripartite Analysis from FM-OLS and DOLS Perspective

Abstract

The study examines the connections between energy generation, oil prices, inflation, and output growth in Africa, employing Fully Modified Ordinary Least Squares (FM-OLS) and Dynamic Ordinary Least Squares (DOLS) models with annual time series data spanning from 1987 to 2021. The findings indicate a negative association between energy generation and output growth, implying that energy infrastructure may be insufficient for promoting economic growth. Fluctuations in oil prices adversely affect output growth, especially in countries that import oil. Further analysis demonstrates that moderate inflation may enhance economic activity by promoting spending and investment; conversely, excessive or unstable inflation impede growth by eroding purchasing power and heightening economic uncertainty. Analyses specific to Nigeria indicate a significant association between energy generation, oil prices, inflation, and output growth, underscoring the necessity for enhanced energy infrastructure and efficient inflation management to achieve equitable growth. Enquiries into Angola and Libya highlight the significant roles of energy generation, oil price, inflation, and structural inefficiencies in their economic dynamics. The study recommends that Nigeria, Angola, and Libya diversify their economies by enhancing sectors such as agriculture, mining, and tourism. It also suggests improving energy infrastructure and governance to mitigate inefficiencies, stabilising inflation through monetary measures, and investing in renewable energy to promote long-term economic growth and resilience against external shocks.

Keywords: Energy, Oil Price, Inflation Rate, Output Growth

JEL Classification: P18, P28, E31, O4