Evaluating the effect of petroleum price volatility on government revenue in Ghana

Abstract

The Ghanaian economy is highly exposed to petroleum price fluctuations (volatility) since petroleum revenues is a major contributor to total government revenue. The resulting volatility in government revenue also has a bullwhip effect on other sectors such as the private sector, making planning difficult and complex. This study examines the effect of petroleum price volatility (PPV) on government revenue and economic growth using quarterly time series data for the period 2010 to 2020. The study adopts the autoregressive distributed lag (ARDL) for estimating the models. Three regressions are estimated to address the set objectives of the study. A pairwise correlation matrix was adopted to determine the relationship between the variables. The findings indicate petroleum price volatility has a negative effect on government revenue both in the short run and the long run. Furthermore, the findings also demonstrate petroleum revenue makes a significant positive contribution to the growth of Ghanaian economy. [Received: January 5, 2022; Accepted: June 18, 2022]