Effects of fuel prices on economic activity: Evidence from Sudan

Abstract

The impact of fuel prices on economic activity is a multifaceted phenomenon. Generally, an upward trend in fuel prices has the potential to impede economic growth, concurrently diminishing consumer expenditure on alternative commodities and services. The objective of this study is to scrutinize the influence of fuel prices on economic activity within Sudan, covering the period from 2000 to 2021. Employing a descriptive methodology, the study delineated the observed phenomenon, while employing a standard analytical approach for data analysis. The study yielded several noteworthy findings. Notably, at a confidence level of 1%, there was a statistically significant impact of fuel prices on oil revenues, as evident from the correlation coefficient of 0.628. Specifically, a 1% increase in fuel prices corresponded to a 0.099% increase in Sudan's oil revenues. Moreover, the study ascertained that the level of fuel prices significantly affected economic growth, whereby a 1% increase in fuel prices resulted in a 0.096% reduction in Sudan's economic growth rate. These findings align with previous research. Consequently, elevated fuel prices incur escalated transportation costs, amplifying the expenses associated with production and transport for businesses. Furthermore, higher fuel prices can instigate inflationary pressures, as the augmented transportation costs contribute to increased production expenses. Ultimately, this can constrain consumer spending, as individuals have limited disposable income for non-essential items. Conversely, lower fuel prices can engender heightened economic activity, granting consumers greater purchasing power for alternative goods and services.