EFFECT OF WORLD OIL PRICES ON GHANA’S CEREAL PRICES

ABSTRACT

In Ghana, most of the oil needs of the country is largely dependent on imported crude oil which makes imported crude oil an essential part of the economy and as such changing world oil prices is a concern that needs to be examined. This thesis examines the effect of world oil prices on Ghana’s cereal (maize and rice) prices using monthly data covering the period 1990 to 2015. Using the Vector Error Correction Models and generalized impulse response analysis, the study finds that among other variables, world oil prices is an important factor that influences cereal prices positively in Ghana in the long run. Also, world cereal prices and exchange rate were found to impact positively on domestic cereal prices in the long run. However, in the short run, the study finds that world oil prices only affected domestic maize price but not the other domestic prices. The impulse response analysis also supported the short run results obtained. The Granger causality test revealed a unidirectional causal link running from world oil prices to domestic maize prices but the same could not be found for the other food crops in the short run. However, the long run causality test showed a unidirectional causality from world oil prices to all the domestic prices. Overall, our results indicate that world oil prices significantly affects domestic cereal prices through the production costs and biofuel channels. The study thus recommends that considering the fiscal space of the economy, government and policy makers should adopt measures to subsidize oil related products particularly the ones used in agriculture such as inorganic fertilizers, as this will in turn reduce the impact of rising oil prices on the domestic front.