Many authors have therefore questioned the role of monetary policy in promoting growth in the manufacturing sectors of African Oil Exporting Countries (AOECs). Mohamed (2011), Corden and Neary (1982) and Lama and Medina (2010) questioned the role of monetary policy in promoting the growth of the manufacturing sector in the AOEC.
Objectives of the study 5
Organisation of the study 5
Over the years, controversies have surrounded the relationship between oil rents and other sectors of the economy of an oil-producing country. On the other hand, Stauffer (1984), Vahid and Jabber (1997), Majid (2006) and Amuzegar (2001) argued that many oil exporting countries have used the forward linkage effect of the oil industry to enhance the growth of their manufacturing sector.
Oil revenue and manufacturing output growth relationship9
Introduction 11
First, some theories have viewed oil as a source of wealth, that is, income and its implications for growth. The idea under this category is centered around theoretical foundations for the relationship between energy and growth.
Oil revenue growth and manufacturing output growth 11
- An overview of “Dutch Disease” phenomenon 12
Similarly, the output of the non-oil tradable sector (manufacturing) should have fallen due to the real exchange rate appreciation. The underlying strength of the spending effect depends on the propensity to consume the output of the non-tradable sector.
Oil as an input (energy source) and manufacturing output growth 18
- Growth theories with natural resources (A review) 19
- Factors affecting substitution of oil as an input in production process 21
In other words, according to Solow, sustainability is only possible if non-renewable resources are produced using natural resources and capital. The replacement of renewable resources with non-renewable ones has affected the use of natural resources in most developed countries.
Methodology and Data 23
Definition of variables 26
- Explanatory variables 26
- Control variables 26
It is measured by the value of fuel exports (% of goods exports). These fuels include premium motor fuel (PMS), dual-purpose kerosene (DPK) and autogas oil (AGO). It is the exchange rate determined by national authorities or determined in the legally sanctioned foreign exchange market.
Estimation technique 27
According to Gujarati (2007), the specific effects of cross-sectional units should be investigated. Fixed effects or LSDVs use different intercept dummies to measure the specific effects of cross-sectional units.
Data 30
Empirical Results 30
Descriptive statistics of the variables 30
Therefore, on average, the manufacturing growth rates of the AOEKs appear to be relatively low. This means that the growth patterns of the manufacturing sector of these countries have been somewhat unstable.
Panel estimation results 33
- Dynamic panel estimation for manufacturing sector growth 38
Specifically, a 10% increase in oil revenues (oil sector growth) would lead to a roughly 7.1% decrease in manufacturing sector growth in the AOECs. We conclude that there is an inverse relationship between oil revenues and manufacturing growth in the AOECs.
Discussion and conclusion 40
It is discovered that the growth of the oil sector has a significant negative impact on the manufacturing sector in the AOECs. We can also conclude that the level of investment in the manufacturing sector in the AOECs is grossly inadequate.
Monetary policy and growth relationship 44
They found that a monetary policy mix involving exchange rates and money supply has a significant impact on the growth of the Nigerian economy. They also established a long-run relationship between monetary policy variables and the growth of the economy as a whole. Sahinoz and Cosar (2010), assessed sectoral growth cycles and the impact of monetary policy on the growth of the manufacturing sector in Turkey.
Methodology 50
Definition of variables 52
Based on literature, the following variables are used in the model, their definitions and measurement unit are presented as follows. It consists of outlays for additions to the economy's fixed assets plus net changes in inventory levels.
Estimation technique 53
- Panel unit root test 54
- Error-correction based panel cointegration test 54
- Estimating the group-mean tests 55
- Estimating the panel test 55
Therefore, rejecting the null hypothesis means that there is cointegration in at least one of the cross-sectional units. The null hypothesis is that there is no cointegration for the whole panel (i.e. 𝐻0𝐵:θi = 0 for all i) against the alternative hypothesis that there is cointegration for all the cross-sectional units.e the whole panel ( 𝐻1𝐵:θi< 0 for all i). Once the null hypothesis is rejected, it means that there is cointegration for the entire panel.
Data 57
The bootstrap approach to computing the parameter estimates is used to capture the cross-sectional dependence. The idea behind this is that there is a possibility of cross-sectional correlation that could affect our results. The core of the test is to find out whether the presence of common factors has an effect on the panel cointegration test result.
Results and discussion 57
- Results of the panel unit root test 58
- Error-correction based panel cointegration test results 59
- Fixed effect panel estimation 60
- Test for cross-sectional dependence 62
- Dynamic panel estimation (SYS-GMM) 64
- Inferences and comparison with previous empirical studies 69
This confirms the weak long-term relationship between monetary policy variables and the growth of the AOEC manufacturing sector. This means that our results support devaluation to stimulate growth in the manufacturing sector in the short run. First, the results show that there is a weak long-run relationship between individual monetary policy variables and manufacturing sector growth in the AOEC.
Summary and conclusion 69
Summary 69
In particular, both exchange rates and net domestic credit show a significant relationship with the growth rate of industrial production in the short run, while neither variable is significant in the long run. The F-test of the fixed effect estimation, the Chi-square value and the Wald test in the dynamic analysis all confirmed this. The implication of this is that the combination of the monetary policy variables has a significant effect on the industrial growth of the AOECs.
Conclusion 71
In addition, exchange rates showed a significant positive relationship with the growth of the manufacturing sector. The implication is that the appropriate monetary policy mix to boost manufacturing sector growth should also discourage currency overvaluation. Monetary Policy Transmission Mechanism and Manufacturing Sector Growth in African Oil Exporting Countries (AOECs).
Introduction 73
The lack of growth in the AOEC manufacturing sector has exacerbated the existence of structural imbalances in terms of high inflation rates and increased unemployment rates. This will allow us to identify the exchange rate regime that is more appropriate for monetary policy instruments to have a significant impact on output growth in the AOEC under MTM. This can expose the problems of the manufacturing sector and in turn tackle them with strong monetary policy regulation.
Objectives of the study 76
Based on the above, it is imperative to study the links between MTM and manufacturing output growth in AOEC. To the best of our knowledge, there is no known study that investigates the cash transfer process in AOEC, with a specific focus on the manufacturing sector. In addition, this study contributes to the literature, inter alia, by attempting to understand the relationship between oil price shocks and the growth of the manufacturing sector in the AOEC under the monetary transmission process.
Scope of the study and justification 77
Angola is excluded due to unavailability of data for some of the required variables. Egypt is included as the only country that falls into the middle class or second layer. In the third layer, three of the countries of the group belong to the same.
A brief review of the five economies 79
- Introduction 79
- Nigerian economy and monetary policy administration 79
- Algerian economy and monetary policy administration 82
- Libyan economy and monetary policy administration 84
- Egyptian economy and monetary policy administration 86
- Gabonese economy and monetary policy administration 89
- Monetary policy transmission mechanism, oil price and economic growth 91
The fiscal deficit increased from 5.6 percent in 2007 to around 6.6 percent of the public budget in the wake of the Libyan revolution in 2010. All these inconsistent exchange rate policies have taken their toll on the non-oil sector of the economy. Individual economies in the monetary zone adjust their internal monetary policy mechanisms to ensure economic stability relative to the fixed exchange rate.
Methodology 94
- Introduction 94
- The model 96
- Model Identification 97
- The Data 101
Considering all the literature discussed under this section, it is confirmed that research studies of the monetary policy transmission mechanism and its effects on manufacturing output are very scarce, especially in the oil exporting countries. Again, monetary policy transmission mechanism has been described as a framework that can be used to assess the manufacturing sector and also develop policy frameworks that can improve the growth of the manufacturing sector in the AOECs (see for example Mohamed, 2011; Corden and Neary, 1982; Lama and Medina , 2010). Third, we focus on the direct impact of the shocks in the MTM on the monetary policy targets; and finally we analyze how shocks in the MTM affect the variables in the model.
Results and discussion 102
Non-Stationarity 102
It should be noted that the growth rate of variables such as money supply, GDP, manufacturing output and oil production were used as this presents a clearer and more realistic perspective of examining the variables in their real values (see Olomola, 2007). .
Lag Length Selection and Normality test 102
Tables 4.2 to 4.6 show that the normality test is carried out on the basis of the three known tests, namely skewness, kurtosis and Jarque-Bera. For the five countries, the results show that all the variables in the model passed the normality test, both individually and jointly. This means that the model's residuals for the five countries are normally distributed.
Structural VAR estimation results for Nigeria104
- Variance decomposition analysis on Nigeria 115
- Inferences and Comparisons with other empirical studies (Nigeria) 117
The manufacturing output decline may not be independent of the appreciation of the currency. This exposes the monetary policy transmission mechanism to the adverse effect of the oil output growth rate shock. This makes the exchange rate shock responsible for the largest contribution to the fluctuations in the performance of the manufacturing sector.
The analysis showed that the response of the increase in production output to the shock of the exchange rate has not been positive. The behavior of output production in the monetary policy transmission mechanism in Libya is dictated by the exchange rate.
Structural VAR estimation result for Algeria 120
- Impulse response function analysis on Algeria 120
- Variance decomposition analysis on Algeria 128
- Inferences and comparison with other empirical studies (Algeria) 131
Structural VAR estimation results for Gabon 133
- Impulse response function analysis on Gabon 133
- Variance decomposition analysis on Gabon 141
- Inferences and comparisons with other empirical studies (Gabon) 144
The shock resulting from oil production growth in Gabon and the responses of selected variables in the monetary policy transmission mechanism are shown in Figure 4.20. Monetary policy instruments in Gabon are generally used to maintain economic stability in the face of the unrealistic exchange rate. This explains why the response of the exchange rate to these variables is the highest.
Structural VAR estimation results for Libya 146
- Impulse response function analysis on Libya 146
- Variance decomposition analysis result on Libya 154
- Inferences and comparison with other empirical studies (Libya) 158
This feature lies in the role of the exchange rate in the transmission mechanism of monetary policy and its association with an oil price shock. The dominance of the exchange rate in the monetary policy transmission mechanism in Egypt is also noticeable with the great influence it has on the growth rate of the money supply. Following the results obtained in the analysis of impulse response functions, the growth rate of manufacturing output is most affected by the shock of the exchange rate.
Structural VAR estimation results for Egypt 160
- Impulse response function analysis on Egypt 161
- Variance decomposition analysis on Egypt 169
- Inferences and comparisons with other empirical studies (Egypt) 173
Tabular comparative analysis of findings from the five AOECs175
Nigeria Sharp responses from all variables. Oil production falls, interest rates fall, the money supply rises, the currency appreciates and manufacturing production falls initially, but. Sharp responses from all variables; follows the same pattern as in oil price shocks; and manufacturing output rises briefly and then falls sharply later. The general effects of the two shocks do not have positive effects on production.
Conclusions 189
Policy Implications 200
Policy Recommendations 205
