Effects of oil price on food prices in developing oil exporting countries: a panel autoregressive distributed lag analysis

• Author: Wale Hassan,David Olayungbo
• Date: 01 December 2016
• Published date: 01 December 2016
• DOI: http://doi.org/10.1111/opec.12090

Effects of oil price on food prices in

developing oil exporting countries: a panel

autoregressive distributed lag analysis

David Olayungbo* and Wale Hassan**

*Department of Economics, Obafemi Awolowo University, Ile-Ife234, Nigeria. Email:

doolayungbo@oauife.edu.ng

**Department of Economics, Obafemi Awolowo University, Ile-Ife, Nigeria.

Abstract

This study focused on the relationship between oil and food prices in developing oil-exporting

countries. Annual data sets of 31 developing oil-exporting countries were employed. The study

covered a period of 13 years, spanning 2001–2013. Given the mixed stationarity processes of the

variables of interest, we adopted a panel autoregressive distributed lag (ARDL) approach,

proposed by Pesaran et al. (2001, Journal of Applied Econometrics, 16, 289). The bound test

cointegration showed a long-run cointegration to exist between food prices and oil price in the

sample countries. The long-run result showed positive and significant effects of oil price on food

prices while the short-run effect was also positive but insignificant.We therefore conclude that oil

price has a long-run positive effect on food price and recommend that developing oil-exporting

countries should formulate long-term agricultural policies to insulate their economies from any

global food crisis that may result from oil price changes.

1. Introduction

Top on the list of the Millennium Development Goals (MDGs) is the eradication of

extreme poverty and hunger, however, in recent years, there has been growing global

concern over oil price fluctuation and rising food prices. Food prices have exhibited

extreme increase since the mid-2000s almost as the oil price volatility. Indeed, in recent

years, especially since the year 2000, major food crop prices have increased for the first

time since the 1970s. The prices of corn, rice, wheat, as well as other crops have

increased greatly. This increase in food prices has put huge pressure on most food-

importing nations, especially the developing countries which are facing hikes in both

food and energy prices in an increasingly fragile macroeconomic environment.

The recent food crisis has become a major source of concern to world leaders. In June

2008, the United Nation-organised (UN) World Food Summit held in Rome raised many

JEL classification: Q02, Q43, C33.

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