Crude Oil Price and Growth of Output : The Case of Ghana

Crude oil has become an integral part of the Ghanaian economy. This makes the growth of the Ghanaian economy vulnerable to fluctuations in the world price of crude oil, especially when the country still depends largely on imported crude oil to meet her crude oil needs. This study therefore employed the ARDL approach to co-integration to examine the relationship between crude oil price and Ghana's economic growth using annual data set from 1967 to 2012. Unlike previous studies on crude oil price economic growth relationship for Ghana, this study controlled for the effect of fiscal policy in the relationship. This study adopts the neoclassical growth model of Solow. The results of the study indicated the existence of a long run relationship between crude oil price and economic growth in Ghana. Also, the study revealed that oil price increases had a negative impact on economic growth in both the short run and long run and this was reinforced by increases in government expenditure in response to the oil price in the form of fuel subsidies. The policy implications of the study are that fuel subsidies should be removed and the country should consider alternative sources of energy which are cheaper relative to crude oil price