The relationship between energy consumption, energy prices and economic growth: case study (OPEC countries)

Abstract

AbstractThis paper studies the causal relationships between energy consumption and economic growth for OPEC countries using cointegration and error‐correction modelling techniques. The results indicate that in the short run, the Granger causality runs from income to energy consumption for Iran, Iraq, Qatar, United Arab Emirates and Saudi Arabia, while for the rest of the Organization of Petroleum Exporting Countries (OPEC) countries, the reverse is true, i.e. the Granger causality runs from energy consumption to income. However, in the long run, there is not any Granger causality relationship for all the OPEC countries. In the case of Qatar and the Saudi Arabia and Nigeria, energy, economic growth and prices are not mutually causal. Results show, that even for these countries, which the energy consumption has an effect on economic growth, the effect is very minimal. The direction of causation between energy consumption and economic growth has significant policy implications. If there exists unidirectional Granger causality running from income to energy, it may be implied that energy conservation policies may be implemented with little adverse or no effects on economic growth. In the case of negative causality running from economic growth to energy, economic growth could rise if energy conservation policy were to be implemented. In other words, if unidirectional causality runs from energy consumption to income, reducing energy consumption could lead to a fall in economic growth. One can conclude that for all of the OPEC countries, the theory of resource curse holds. Hence, substantial energy consumption is not likely to bring about significant economic growth but an increase in CO2 emissions. In this regard, it is very important for those low‐income OPEC countries to adopt appropriate energy policies in order to promote their economic growth.