Proceedings of Eurasia Business Research Conference
16 - 18 June 2014, Nippon Hotel, Istanbul, Turkey, ISBN: 978-1-922069-54-2
Economic Growth and Energy Consumption in GCC
Countries: Evidence in the Panel Framework
Ahmed Almohaimeed
There are several empirical studies analyzing the causal relationship between
economic growth and energy consumption. This interest can be explained by the
contribution of oil revenues to GDP in oil-exporting countries and the increase energy
bill in oil-importing countries due to the observable increases in oil prices and the
global oil demand especially in the early 1970s. However, the empirical results on the
direction of causality relationship between economic growth and energy consumption
have been mixed and sometimes conflicting. Moroney (1989) and Shresth (2000)
examine causal relationship between economic growth and energy consumption. The
results show the existence of a unidirectional causality running from energy
consumption to economic growth. Glasure and Lee (1997) investigated the causality
association between economic growth and energy consumption for South Korea and
Singapore. They found that there is no causal relationship between economic growth
and economic growth for South Korea and unidirectional causal relationship from
energy consumption to economic growth for Singapore. Asafu-Adjaye (2000)
investigated the relationship between economic growth, energy and energy prices and
GDP for Asian developing countries. The empirical results based on cointegration
techniques and error correction models show evidence of bidirectional causal links
between energy consumption and economic growth for two countries and
unidirectional running from energy consumption to economic growth. In the context of
GCC countries, Al-Iriani (2006) investigates the causality relationship between GDP
and energy consumption during the period 1971-2002. The results based on panel
cointegration and causality techniques indicate a unidirectional causality running from
GDP to energy consumption. Accordingly, this finding reject in fact hypothesis that
GDP growth is linked to energy consumption for oil-producers countries such as GCC
region.
The paper explores the causal relationship between energy consumption and
economic growth in GCC countries. The panel Granger Causality techniques based
on Konya (2006) approach are used to uncover the causal interaction between energy
consumption and gross domestic product (GDP) over the period 1980-2011.
Moreover, additional macroeconomic variables demining economic growth are
included in the empirical analysis such as government spending and investment.
These latter can be treated as auxiliary variables are not directly involved in the
causality analysis. Furthermore, the causality techniques based on Konya (2006)
approach allows for heterogeneity across GCC countries. The empirical results chow
evidence of bidirectional causal links between economic growth and energy
consumption for Qatar, Bahrain and Saudi Arabia, but a causal relationship from
energy consumption to economic growth for Oman and UAE. Our findings are more
consistent compared to previous studies who reveal in general the existence of a
unidirectional causality running from economic growth to energy consumption. The
empirical findings support that the energy consumption is the source of the economic
growth in GCC countries. Therefore, the GCC countries should take care for the
conserving energy policy which can hinder economic growth.
Key Words: Economic growth, Energy consumption, Panel causality,
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Dr. Ahmed Almohaimeed, Department of Economics, King Saud University, Riyadh, Saudi Arabia,
Email: almohaimeed.ksu@gmail.com