Oil-price Shocks and Economic Growth: A Review of Literature

Abstract

This study reviews oil-price shocks and economic growth with the aim of providing an in-depth knowledge based on the existing literature. The study uses content analysis coupled with trends analysis from 1981-2020. Brent crude oil price which represents a uniform substitute for oil price at the international oil market is used. Six (6) theories that links oil price and economic growth are considered. Out of the theories, the study anchors its theoretical framework on Dutch Disease Theory because the neglect of other sectors especially the developing oil-exporting/producing countries due to the discovery of natural resources (crude oil) has affected their economic growth. Documented evidences show that shocks in oil price hinder economic growth. The trend analysis also indicates unexpected movements in oil price (increase/decrease) whenever there is a shock. Based on this, necessitates the need for most oil-producing developing countries to look beyond the oil sector to prevent their economies from being mono-culturally based by developing indigenous products and in this process reduce the importation of those goods that can be produced locally.