Crude oil is one of the world’s most important commodities and the economy of several countries relies heavily on the development in the oil price. The level of the oil price is crucial both to countries that export oil and to countries that import oil. If the level of the oil price is high oil exporting countries earn more money when selling oil - on the other hand it will be more expensive for the importing countries to buy the crude oil. The aim of this thesis is to analyze how the development of the oil price affects the government debt to GDP for both countries that export and import oil. There seems to be a significant relationship between the American dollar and the level of the oil price. Therefore the aim of this thesis is also to analyze if there in general is a relationship between the local exchange rates and the level of the oil price in both countries that export and import crude oil. To achieve the goal several regression analysis have been performed to analyze if the oil price, oil rents to GDP and the local exchange rates affects the government debt to GDP as well as a regression analysis analyzing the influence the oil price has on the local exchange rates and vice versa. The analyses are based on either a regression with random effects or a regression with fixed effects depending on the structure of the variables. There is an indication of the American dollar being stronger compared to other currencies when the oil price rises. For that reason there are also performed vector autoregressive analyses to analyze the relationship between the development of the oil price and the local exchange rates compared to American dollars. The main findings of the thesis showed that the government debt to GDP for countries that export oil depends on the development in the oil price. An increase in the oil price leads to a decrease in the government debt to GDP. The results makes sense because it often is the government who sell the oil, and if the oil price increase – and the assumption is that the costs are unchanged – the government earn more money that they can use to pay off their debts and/or refrain from borrowing money. A change in either exchange rates or oil rents affects the government debt. The government debt to GDP for countries that import oil is not affected by a change in any of the variables. The findings also showed that a change in the oil price has an effect on the local exchange rates in both countries that import and export oil, and vice versa. The vector autoregressive model did not reveal any correlation between the two time series. The findings also showed that when performing a regression analysis on the differences in the time series instead of the levels, either oil prices or local exchange rates are significant to each other. The reason is that both oil price and exchange rates are random walks which are why unit roots are present. The author of the thesis found this topic inspiring and relevant and the writer hopes that the reader finds it exciting too.
|Educations||MSc in Business Administration and Management Science, (Graduate Programme) Final Thesis|
|Number of pages||93|