Effects of Oil Price on Food Prices in Developing Oil Exporting Countries: A Panel Autoregressive Distributed Lag Analysis

Abstract

This study focused on the relationship between oil and food prices in developing oil‐exporting countries. Annual data sets of 31 developing oil‐exporting countries were employed. The study covered a period of 13 years, spanning 2001–2013. Given the mixed stationarity processes of the variables of interest, we adopted a panel autoregressive distributed lag (ARDL) approach, proposed by Pesaran et al. (2001, Journal of Applied Econometrics, 16, 289). The bound test cointegration showed a long‐run cointegration to exist between food prices and oil price in the sample countries. The long‐run result showed positive and significant effects of oil price on food prices while the short‐run effect was also positive but insignificant. We therefore conclude that oil price has a long‐run positive effect on food price and recommend that developing oil‐exporting countries should formulate long‐term agricultural policies to insulate their economies from any global food crisis that may result from oil price changes.