Monetary policy and manufacturing sector growth in Africa's oil exporting countries.
Various studies in the past have attributed the slow level of economic development in many African countries to the underdeveloped real sector of these economies, especially the manufacturing sector. The situation appears to be worse for resource rich countries, such as the oil producing countries in Africa due to the problem of Dutch Disease. Consequently, the World Bank and the International Monetary Fund (IMF) in separate appraisals of the African economy have called on African oil exporting countries to embrace diversification in their economies by developing their manufacturing sectors. The role of monetary policy in promoting the growth of the manufacturing sectors of Africa’s Oil Exporting Countries (AOECs), has therefore been questioned by a number of authors. The purpose of this study, which is to assess monetary policy and the growth of manufacturing sectors in the AOECs, is organised under three major objectives. Firstly, the study examines the relationship between oil and the manufacturing output growth of the AOECs using a panel data analysis. Secondly, the study also assesses the relationship between the manufacturing output growth and the monetary policy using a panel cointegration analysis. Thirdly, the study conducts an individual analysis of each member of the AOECs, using the net oil exporters only and examines the monetary policy transmission mechanism, oil price shock and output relationship in each country using the a structural vector autoregression (SVAR). After empirical analysis, the study contributes to the existing literature in the following ways: Firstly, a negative or inverse relationship is obtained between oil and manufacturing output growth of the AOECs which might be an indication of the existence of Dutch Disease in these countries’ economies. Secondly, through the panel cointegration analysis the study will discover that there exists a very weak long-run relationship between monetary policy variables and manufacturing output, but the relationship appears to be stronger in the short-run. Thirdly, building on the panel results where the countries exhibit individual cross-sectional differences, the SVAR shows that the effectiveness of monetary policy in promoting the growth of the manufacturing sector in the AOECs is ultimately affected by oil price shock, with the severity depending on the following: the exchange rate system; monetary policy objectives; broadness of export base and level of investment in the manufacturing sector.
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