Heterogeneous Responses to Oil Price Shocks: Trade and Output Effects in Oil-Import-Dependent Economies

Abstract

This study examines the asymmetric effects of oil price fluctuations on domestic output and trade balance across 30 oil-importing countries from 1983 to 2022. Two distinct models are employed. The first estimates GDP as a function of oil prices, oil consumption, FDI, net exports, the labour force, and gross fixed capital formation. The second model treats the trade balance as a function of oil prices, the real effective exchange rate, net national income, and FDI. Using the Nonlinear Autoregressive Distributed Lag (NARDL) approach, the analysis reveals significant asymmetries in the impact of oil price changes. Specifically, oil price increases tend to suppress GDP and worsen the trade balance, while price decreases are associated with modest improvements in both indicators. The findings indicate that higher oil prices reduce economic growth by raising production costs and inflationary pressures, whereas lower oil prices encourage output by stimulating demand and investment. Capital formation and energy consumption emerge as the strongest drivers of GDP growth, while foreign direct investment plays a supportive but less immediate role. In the case of the trade balance, positive oil price shocks deteriorate external performance, whereas adverse shocks improve it in the short term. The real effective exchange rate shows an inverse relationship with trade balance, indicating that currency appreciation hurts export competitiveness. These findings highlight the vulnerability of oil-importing economies to oil price volatility and underscore the need for targeted policy measures to enhance economic resilience and stability.