Oil prices and agricultural growth in South Africa: A threshold analysis

Abstract

Oil plays a pivotal role in the growth of agriculture as a combustion lubricant for machineries and equipment used in the farming enterprise. Several studies have shown that a relationship exists between oil prices and agricultural growth without clear boundaries beyond which these prices are detrimental to the growth. Therefore, this study is conducted to identify the threshold above which oil prices will adversely affect agricultural growth in South Africa. Real West Texas Intermediate (WTI) and Real Brent crude oil prices in both Dollars and Rands were used as threshold variables in the threshold regression model of agricultural growth. The findings showed that beyond the threshold values of 12.99%, 15.68%, 15.69% and 15.70%, the prices of Real WTI crude oil in Dollars, Real Brent crude oil in Dollars, Real WTI crude oil in Rands and Real Brent crude oil in Rands respectively will have significant negative effects on agricultural growth in South Africa.