Impact Of Crude Oil Price Volatility On Economic Growth:An Empirical Evidence Of South Sudan

This paper empirically examines the impact of oil price volatility on economic growth,utilizing vector auto-regressive VAR model,using data from 2008 Q to 2018 Q.The empirical results for this study conclude that oil price volatility has a significant negative impact on economic growth.More explicitly,the downfall of crude oil prices unfavorably affects economic growth in the South Sudan.Real GDP was weakened roughly to 20% for the period of two years,specifically from 2015 to 2016,and annualized inflation showed the speed at which inflation has increased.The price elasticity of demand continuously believed to be undesirable,demand falls by a definite proportion with a certain percentage price escalation for specific factor input,such as cost of oil production,and other commodities due to depreciation in the domestic currency.This affects government share of production to reduce due to the dropping of oil prices,and raises share of production of the oil operating companies in order to cover their costs,as specified in the oil profit sharing agreement of the Petroleum Revenue Management Act.The Granger Causality test’s results show that exchange rate(EXR)Granger Causes inflation rate(INF)at a 1% significance level,which confirms the theory that a decrease in the value of domestic currency makes it cheaper with respect to hard currency(USD),and significantly leads to more inexpensive domestic goods for foreign clients.It increases aggregate demand of domestic goods in the global market and encourages more exports to foreign customers.The collapse of oil prices and conflict resulted to debility in oil production and exports,which reduced government returns and raised security associated expenditure and fiscal deficit rapidly,all together exacerbated economic uncertainty in the country.The monetization of fiscal deficit indicates a high growth of inflation and impulsive exchange rate depreciation,which also continues to manufacture a massive distortions and disproportions in the economy of South SudanHowever,this argumentative effects on the economy could be a driving force for government to generate policies which encourage economic high diversification,enterprises should invest in various natural resources including highly progressive technologies for saving,and use energy efficiently and effectively so as to reduce high dependence on oil as the solely source of revenue.