THE IMPACT OF OIL PRICE SHOCKS ON THE ECONOMIC GROWTH OF LIBYA: AN ARDL-BOUND TESTING APPROACH

Abstract

This paper examines how oil price shocks affect the Libyan economic growth over the period from 1990 to 2016. Using the autoregressive distributed lag (ARDL) bounds test, the study finds that oil price changes affect the Libyan economic growth. Oil prices are important in explaining GDP movements. Moreover, this test suggests that oil price has a long-term positive impact on economic growth. Our empirical results indicate a two-way causal relationship between oil prices and GDP, while a one-way causal relationship arises from imports and trade openness to oil prices. However, oil price shocks do not appear to have a statistically significant effect on the trade balance. The result shows that the country should formulate appropriate energy conservation policies taking into cognizance of her peculiar condition.