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Macroeconomic determinants of crude oil demand in Ghana

Oteng-Abayie, Eric Fosu and Ayimbila, Prosper Awuni and Eshun, Maame Esi (2016): Macroeconomic determinants of crude oil demand in Ghana.

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Abstract

This paper investigates the macroeconomic determinants of crude oil demand (consumption) in Ghana with annual data from 1980 to 2013. The study applied the vector error correction model (VECM) to estimate the long-run and short-run determinants of crude oil demand in Ghana within the study period. The long run estimates reveal that price of crude oil, real GDP per capita, real effective exchange rate, and energy saving technical progress are significant long run determinants of crude oil demand. The results also indicate that crude oil demand in Ghana is income and price inelastic. Crude oil price has a positive long run effect indicating the virtual lack of substitutes and overdependence on crude oil for energy generation and economic activities in Ghana. Based on the variance decomposition and impulse response analyses, the study also found that positive shocks from real effective exchange rate had a dominant and positive impact on crude oil demand in Ghana. We suggest among others that Ghana vigorously explore alternative and sustainable and energy sources to curtail the overdependence on crude oil, strategically hedge against volatilities in the exchange rate market, and revive the country’s oil refinery to refine her own crude oil to reduce importation.

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