The Impact of Oil Price Rise on Industrial Production

Oil revenues and the effect exerted on the economic climate have long captured the researchers’ attention. Drawing on the importance of oil in oil producing countries, this study taps into the impact of a rise in oil prices on different economic sectors, including manufacturing, agriculture and service. To this end, the study has tested the following hypotheses within the framework of Dutch disease theory: oil price rise diminishes agriculture’s and industry’s share of the total gross domestic product (GDP), yet it augments that of the service sector. To assess the proposed hypotheses, a couple of channels through which the natural resource abundance could exert influence on the countries’ economy are addressed along with Dutch disease theory (as one of the channels) before estimating an econometric model with panel data for 10 oil producing countries and 10 non-oil producing countries over a 14-year period from 1993 to 2007 inclusive. The results revealed that oil price rise over the period has diminished the manufacturing’s, agriculture’s and, services’ value added share of GDP in oil producing countries. However, no similar pattern was observed for non-oil producing countries.