Domestic-Currency Oil Prices and Real Industrial Value Added in Oil-Importing Economies: Evidence from a CS-ARDL Panel

This study estimates the conditional short- and long-run association between domestic-currency oil prices and real industrial value added in a panel of ten selected oil-importing economies over 1993–2024. The analysis employs a cross-sectionally augmented autoregressive distributed lag mean-group (CS-ARDL) framework that accommodates cross-sectional dependence, heterogeneous dynamics, non-stationarity, and cointegration. The domestic-currency oil-price variable is constructed by converting the OPEC basket price into each country’s local currency using the official exchange rate, thereby capturing the effective nominal oil-cost exposure faced by domestic industrial producers. Gross fixed capital formation, foreign direct investment, labor-force participation, trade openness, and inflation are included as control variables. The short-run results show that a rise in domestic-currency oil prices is associated with a statistically significant decline in real industrial value added. The error-correction coefficient is negative and significant, indicating that approximately 35.8% of short-run disequilibrium is corrected within one period. In the long run, domestic-currency oil prices have a negative and statistically significant association with industrial value added in both the CS-ARDL and CS-DL specifications. The estimated long-run elasticities are −0.610 and −0.310, respectively, indicating that sustained increases in the effective domestic price of imported oil constrain industrial performance. Gross fixed capital formation, labor-force participation, and trade openness are positively associated with industrial value added, whereas foreign direct investment and inflation are statistically insignificant. For the sampled oil-importing economies, the findings highlight the importance of reducing industrial exposure to imported-oil costs through energy efficiency, energy diversification, and policies that limit exchange-rate vulnerability. Given possible endogeneity, the estimates are interpreted as conditional associations rather than definitive causal effects.