| dc.description.abstract | The main objective of this study is to establish the causes of oil import volatility and its effect on economic growth in Kenya. The study used quarterly data from KNBS, CBK, and OPEC to determine the long-run and short-run causes of oil import volatility, and to study the effects of the volatility on GDP growth. The variables of interest are GDP growth rate, exchange rate, OPEC oil production, quantity of money (M2), traffic volume, total manufacturing index, international oil prices, and domestic energy (electricity) production. The analysis is based on the Johansen-Juselius approach to co-integration test and vector error correction.
Results indicate that exchange rate was has a statistically significant effect on oil import volatility in the short-run. In the long-run, oil import volatility is determined by several macroeconomic variables. Specifically, exchange rate, traffic volume, total manufacturing index, and GDP growth rate have positive and statistically significant effects on oil import volatility. OPEC oil production has a negative relationship with oil import volatility.
Oil import volatility has a negative and significant effect on GDP growth in both the short-run and the long-run. However, an increase in oil import leads to increased economic growth and vice versa. Other important determinants of GDP growth include exchange rate, quantity of money in circulation, domestic energy production, and interest rate. Given these findings, the government should focus on stabilizing the exchange rate and increase domestic energy production to reduce oil import volatility. | en_US |
