The Impact of Oil and Gas Extraction in Sub-Saharan Africa: Evidence from Ghana

Abstract

The topic of how oil and gas extraction impact on economic development of nations is well researched, especially African oil-producing countries. Literature has revealed that countries endowed with natural resources tend not to grow in terms of Gross Domestic Product (GDP) compared to their counterparts with limited or no such natural resources. This phenomenon has been characterized as the paradox of plenty. The study sought to evaluate the economic impact of oil and gas extraction in Ghana. The study utilized the quantitative research approach with secondary data from World Bank Development Indicators, 2019. Johansen Co-integration Approach was also used to evaluate the extent of causality between oil production (revenues) and the various economic variables. The Johansen Co-integration test revealed that oil revenue exerts a significant effect on Ghana’s GDP (4% higher than the average GDP before the production of oil and gas). Meanwhile, the average agriculture value-added and service value-added of Ghana for the period after the production of oil is lower than the average agriculture value-added and service value-added for the period before the production of oil in commercial quantities. The study used Ghana as a case study which somehow limits its findings. Future studies may use a panel model to do a cross-country analysis of the impact of oil and gas production on the various sectors of the respective countries. Government should formulate and expand policies (such as planting for food and jobs, and agricultural mechanization) that will help grow the agricultural and service sectors of the economy using oil revenues. The study also recommends that the Public Interest and Accountability Committee (PIAC) should closely monitor and collaborate with the petroleum revenue management institutions to ensure that oil revenues allocated to the government priority sectors, especially agriculture and service, are fully implemented. This study differs from prior studies (novel) because it aimed to determine the impact of oil and gas extraction on agricultural, industrial, and service sectors before and after oil and gas production.