The effects of oil price volatility on economic growth in major oil-producing countries: A Panel VAR approach

The main objective of this study is to investigate the effects of oil prices and its volatility on economic growth in oil-exporting countries over the period 1980 to 2014 by using Panel VAR approach. The sample is divided into two groups: OPEC and non-OPEC oil-producing countries. In this study, the oil price volatility index is derived by using GARCH(1,0) model and then Its relationship with variables of inflation, real exchange rate and oil prices on economic growth in the framework of Panel VAR was investigated. The results showed that the responses of GDP growth to the shocks of oil prices and its volatility in OPEC countries had intensified, while the non-OPEC economies did not show a significant response against oil shocks. Analysis of variance decomposition also confirmed these findings. Finally, the causality test between variables showed that the existence of causality from the oil prices volatility to economic growth cannot be rejected in OPEC countries, although such a relationship in non-OPEC countries is not statistically significant.