Abstract
This study aimed to analyze demand for oil in 20 selected OECD countries over the period 1980 to 2011, within the framework of panel data model. The long-run income and price elasticities of oil demand were computed and the Granger causality between variables of interest was tested. The results indicated that oil demand has positive and negative income and price elasticities, respectively. In addition, both income and price were inelastic in the long-run, but price elasticity was lower than income elasticity. Furthermore, a bidirectional causality running from economic growth to oil consumption and vice versa was obtained, providing evidence of feedback hypothesis. Based on these results, some crucial policy implications were suggested.
Highlights
Energy is accepted as a crucial determinant of economic development and prosperity
Energy demand is expected to increase in the coming years, and today more than half of energy demand is satisfied by oil and natural gas (World Petroleum 2013)
To decide which unit root test is appropriate for our estimation, we implemented the Lagrange multiplier (LM) test developed by Breusch and Pagan (1980) for both the model and each variable
Summary
Energy is accepted as a crucial determinant of economic development and prosperity. About 80% of the global primary energy supply is made up of fossil fuels since the mid-1900s (World Energy Council 2013). As stated by Cooper (2003), crude oil, accounting for about 40.6% of primary energy consumption, has a preeminent position at the heart of the world economy and is the most important source of energy on the planet. Oil has a crucial role in the economic development process as an important strategic material and a highquality energy source (Xiong and Wu, 2008). More than any other energy resource, oil has powered the great economic boom of the past century and continues to drive the global economy (Tsirimokos, 2011)
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