Empirical Analysis of the Efffect of Crude Oil Price Volatility on Industrial Output in Ghana

Abstract

The industrial sector of Ghana is the second largest consumer of refined crude oil products. The industrial sector's output has exhibited significant volatility, with a GDP share of 19% in 2009 and 28.26% in 2021. A rising number of worldwide economies are particularly worried about the effect of crude oil price volatility on economic growth. Hence, this study investigated the impact of crude oil price volatility on industrial sector output in Ghana. The study employed monthly data from January 2001 to December 2020. The quantile regression, the causality in quantiles and bi-wavelet approaches were used to examine the relationship between crude oil price volatility and industrial sector output. The study’s empirical model results showed that there was a negative asymmetric impact of crude oil price volatility on industrial sector output at normal and boom economic conditions. Also, the study revealed significant causality between crude oil price volatility and industrial sector output mostly at stress and normal economic conditions of the industrial sector. The study further found negative significant short-term co-movements between crude oil price volatility and industrial sector output across time and frequency. The study recommended that policymakers should consider implementing petroleum price policies that can mitigate the negative effects of crude oil price volatility on the industrial sector output This includes establishing a Price Stabilization Fund which allows the government to save windfall gains during periods of high oil prices and release these funds to offset rising costs when prices fall. This helps stabilize domestic petroleum product prices, ensuring that industrial producers are shielded from sudden crude oil price fluctuations.