Abstract
This study provides insight into sustainability challenges in Venezuela by exploring the causal interactions between oil price, energy consumption and carbon dioxide (CO2) emissions in Venezuela. Economic growth, government consumption expenditure and trade openness are included as additional determinants in the analysis. The auto-regressive distributed lag (ARDL) bounds approach to cointegration provides evidence of long-run relationship between the variables with the incorporation of structural breaks observed in the series. The estimates suggest that an increase in crude oil price significantly increases energy consumption, government consumption expenditure and energy consumption generate CO2 emissions, and CO2 emissions exert negative effects on economic growth in the oil-rich economy. This study further examined the direction of causality between the variables using the innovative accounting approach (IAA). The results suggest that crude oil price causes energy consumption in the economy. No significant causal relationship is found between energy consumption and economic growth. Energy consumption causes CO2 emissions in the economy. In addition, a unidirectional causality runs from CO2 emissions to economic growth. The response of economic growth to CO2 emissions indicates that more CO2 emissions in the economy would exert negative effects on economic growth. It is, therefore, expected that policy makers would consider energy diversification as a major component of economic diversification policies in Venezuela.
Highlights
According to the Organization of Petroleum Exporting Countries (OPEC), the Bolivarian Republic of Venezuela has one of the world’s largest proven crude oil reserves with302,809 million barrels (OPEC Annual Statistical Bulletin 2018)
6 Conclusion This study examined the causal interactions between crude oil price as an indicator of oil resource, energy demand and C O2 emissions in Venezuela over the period 1971– 2013, incorporating real gross domestic product (GDP) per capita for economic growth, government consumption expenditure for fiscal spending and trade openness
The autoregressive distributive lag (ARDL) estimates of the energy demand model suggest that an increase in crude oil price significantly increases energy consumption in the economy
Summary
According to the Organization of Petroleum Exporting Countries (OPEC), the Bolivarian Republic of Venezuela has one of the world’s largest proven crude oil reserves with. The short-run and long-run coefficients estimated through the application of autoregressive distributive lag (ARDL) model suggest that higher crude oil export receipts create economic conditions that generate more energy consumption, which contributes significantly to C O2 emissions in the Ecuadorean economy. 3.2 Empirical model and estimation method This study implements the following log-linear models to examine empirically the relationship between crude oil price, energy consumption, carbon dioxide (CO2) emissions and economic growth in Venezuela. 3.3 Innovative accounting approach for Granger causality Following Shahbaz et al (2013), Alam et al (2016), Mahalik et al (2017), Rafindadi (2016), Cansino et al (2018), Khraief et al (2018), Imamoglu (2019), this study employs the innovative accounting approach (IAA) to examine the direction of causality between energy consumption, crude oil price, C O2 emissions, economic growth, government consumption expenditure and trade openness in Venezuela. One can conclude that a strong and significant reaction of energy consumption to shocks in crude oil price implies that crude oil price causes energy consumption
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