Economic growth-electricity consumption causality in 12 European countries: A dynamic panel data approach

This paper applies recent panel methodology to investigate the long-run and causal relationship between electricity consumption and real GDP for a set of 12 European countries using annual data for the period 1970–2007. The sample countries have moved faster than other neighboring countries towards the creation of a single electricity market over the past 30 years. Energy prices are also included in the study due to their important role in affecting the above variables, thus avoiding the problem of omitted variable bias. Tests for panel unit roots, cointegration in heterogeneous panels and panel causality are employed in a trivariate VECM estimated by system GMM. The results show evidence of a long-run equilibrium relationship between the three series and a negative short-run and strong causality from electricity consumption to GDP. As expected, there is bidirectional causality between energy prices and GDP and weaker evidence between electricity consumption and energy prices. These results support the policies implemented towards the creation of a common European electricity market.     

Asymmetric error correction models for the oil–gasoline price relationship

The existing literature on price asymmetries does not systematically investigate the sensitivity of the empirical results to the choice of a particular econometric specification. This paper fills this gap by providing a detailed comparison of the three most popular models designed to describe asymmetric price behavior, namely asymmetric ECM, autoregressive threshold ECM and ECM with threshold cointegration. Each model is estimated on a common monthly data set for the gasoline markets of France, Germany, Italy, Spain and UK over the period 1985–2003. All models are able to capture the temporal delay in the reaction of retail prices to changes in spot gasoline and crude oil prices, as well as some evidence of asymmetric behavior. However, the type of market and the number of countries which are characterized by asymmetric oil–gasoline price relations vary across models. The asymmetric ECM prescribes that long-run price asymmetries are most likely to be found in the second stage of the transmission chain. Conversely, the ECM with threshold cointegration suggests that long-run price asymmetries vary across countries and markets. Short-run price asymmetries are captured by the asymmetric ECM specification and the TAR-ECM. The latter model suggests that all European countries are likely to be affected by asymmetries at the distribution stage, while the results obtained with the asymmetric ECM are mixed.     

Energy consumption and economic growth: The case of oil exporting countries

This paper examines the causal relationship between the per capita energy consumption and the per capita GDP in a panel of 11 selected oil exporting countries by using panel unit-root tests and panel cointegration analysis. The results show a unidirectional strong causality from economic growth to energy consumption for the oil exporting countries. The findings have practical policy implications for decision makers in the area of macroeconomic planning. In most major oil exporting countries, government policies keep domestic prices bellow free market level, resulting in high levels of domestic energy consumption. The results imply that the energy conservation through reforming energy price policies has no damaging repercussions on economic growth for this group of countries.     

Towards a worldwide integrated market? New evidence on the dynamics of U.S., European and Asian natural gas prices

Has the integration of European, North American and Asian natural gas markets been fostered over the last few years by growing LNG export capacities and an increasing market share of spot transactions? This is the key question that this article sets out to answer. For this purpose, we develop bivariate error correction models with structural breaks and asymmetric responses among gas references prices, oil prices, and coal prices. We use daily prices of all reference prices spanning from January 12, 2004, to January 12, 2018, for the North American, Asian and European areas. We show that if European and U.S. gas prices are co-integrated when multiple breaks are allowed, their respective markets cannot be considered integrated. However, our results show that the degree of interdependence between European and American prices is increasing, whereas the degree of interdependence between gas and crude oil prices is decreasing. More surprisingly, we also highlight that reversions to long-term equilibria both between the Henry Hub (HH) and the National Balancing Point (NBP) and between the HH and the Japan Korean Marker (JKM) are highly asymmetric, a pattern that could be intuitively interpreted as the consequence of market arbitrage strategies by exporting countries in a context of oversupplied markets.     

Energy consumption and economic growth: Evidence from the economic community of West African States (ECOWAS)

Access to modern energy is believed to be a prerequisite for sustainable development, poverty alleviation and the achievement of the Millennium Development Goals.However, theoretical models and empirical results offer conflicting evidence on the relationship between energy consumption and economic growth that we remain largely unsure of the cause-and-effect nature of this relationship, if indeed a relationship exists at all.This paper tests, in a panel context, the long-run relationship between energy access, and economic growth for fifteen African countries from 1980 to 2008 by using recently developed panel cointegration techniques.We adopt a three-stage approach, consisting of panel unit root, panel cointegration and Granger causality tests to study the dynamic causal relationships between energy consumption, energy prices and growth as well as relationship between electricity consumption, prices and growth.Results show that GDP and energy consumption as well as GDP and electricity move together in the long-run. By estimating these long-run relationships and testing for causality using panel-based error correction models, we found unidirectional long-run and short-run causality. The causality is running from GDP to energy consumption in the short-run, and from energy consumption to GDP in the long-run. There is also evidence of unidirectional causality running from electricity consumption to GDP in the long-run.This study thus provides empirical evidence of long-run and causal relationships between energy consumption and economic growth for our sample of fifteen countries; suggesting that lack or limited access to modern energy services could hamper economic growth and compromise the development prospects of these countries.     

Energy consumption and economic growth: New insights into the cointegration relationship

This paper examines the long-run relationship between energy consumption and real GDP, including energy prices, for 25 OECD countries from 1981 to 2007. The distinction between common factors and idiosyncratic components using principal component analysis allows to distinguish between developments on an international and a national level as drivers of the long-run relationship. Indeed, cointegration between the common components of the underlying variables indicates that international developments dominate the long-run relationship between energy consumption and real GDP. Furthermore, the results suggest that energy consumption is price-inelastic. Causality tests indicate the presence of a bi-directional causal relationship between energy consumption and economic growth.     

Energy consumption and economic growth revisited in African countries

The aim of this paper is to provide new empirical evidence on the relationship between energy consumption and economic growth for 21 African countries over the period from 1970 to 2006, using recently developed panel cointegration and causality tests. The countries are divided into two groups: net energy importers and net energy exporters. It is found that there exists a long-run equilibrium relationship between energy consumption, real GDP, prices, labor and capital for each group of countries as well as for the whole set of countries. This result is robust to possible cross-country dependence and still holds when allowing for multiple endogenous structural breaks, which can differ among countries. Furthermore, we find that decreasing energy consumption decreases growth and vice versa, and that increasing energy consumption increases growth, and vice versa, and that this applies for both energy exporters and importers. Finally, there is a marked difference in the cointegration relationship when country groups are considered.     

Crude oil shocks and stock markets: A panel threshold cointegration approach

This paper proposes a panel threshold cointegration approach to investigate the relationship between crude oil shocks and stock markets for the OECD and non-OECD panel from January 1995 to December 2009. Nonlinear cointegration is confirmed for the oil–stock nexus in the panel. Because threshold cointegration is found, the threshold vector error correction models can be run to investigate the presence of asymmetric dynamic adjustment. The Granger causality tests demonstrate the existence of bidirectional long-run Granger causality between crude oil shocks and stock markets for these OECD and non-OECD countries. However, the short-run Granger causality between them is bidirectional under positive changes in the deviation and unidirectional under negative ones. Moreover, the speed of adjustment toward equilibrium is faster under negative changes in the deviation than that under positive ones in these OECD and non-OECD countries.     

Asymmetry in retail gasoline and crude oil price movements in the United States: An application of hidden cointegration technique

There is a common belief that gasoline prices respond more quickly to crude oil price increases than decreases. Some economists and politicians believe that asymmetry in oil and gasoline price movements is the outcome of a non-competitive gasoline market requiring that governments take policy action to address “unfair pricing”. There is no consensus as to the existence, or nature, of the asymmetric relationship between prices of gasoline and crude oil. Much of this literature specifies asymmetry in the speed of adjustment and short-run adjustment coefficients. In contrast, Granger and Yoon's [Granger, C.W. and Yoon, G. “Hidden Cointegration”, University of California, San Diego, Department of Economics Working Paper, (2002).] Crouching Error Correction Model (CECM) identifies asymmetry of the cointegrating vectors between components (cumulative positive and negative changes) of the series. Applying the CECM to retail gasoline and crude oil prices for the U.S., we find that there is only evidence of cointegration between positive components of crude oil prices and negative components of gasoline prices. In contrast to the literature which attributes asymmetric price movements to market power of refiners, these findings suggest that gasoline prices –in the long run– are more influenced by the technological changes on the demand side than crude oil price movements on the supply side.     

Oil prices,nuclear energy consumption,and economic growth: New evidence using a heterogeneous panel analysis

This paper applies panel data analysis to examine the short-run dynamics and long-run equilibrium relationships among nuclear energy consumption, oil prices, oil consumption, and economic growth for developed countries covering the period 1971–2006. The panel cointegration results show that in the long run, oil prices have a positive impact on nuclear energy consumption, suggesting the existence of the substitution relationship between nuclear energy and oil. The long-run elasticity of nuclear energy with respect to real income is approximately 0.89, and real income has a greater impact on nuclear energy than do oil prices in the long run. Furthermore, the panel causality results find evidence of unidirectional causality running from oil prices and economic growth to nuclear energy consumption in the long run, while there is no causality between nuclear energy consumption and economic growth in the short run.     

Oil price shocks and GDP growth: Do energy shares amplify causal effects?

The paper estimates the effect of oil price fluctuations on GDP growth, using linear and nonlinear VAR models with data from 12 countries. By using an IVAR approach, it reports strong significance for the existence of non-linear moderator effects caused by a decline in the oil-to-energy share, which weakens the causal effect of oil prices on economic growth. A consideration of the relationship of oil prices and GDP over 44 years confirms the exclusion of symmetry of previous studies. Moreover, the paper indicates that the effect of negative oil price movements is causal for more countries than has been suggested so far.     

Dynamic cyclical comovements between oil prices and US GDP: A wavelet perspective

In this paper, we use wavelet analysis to investigate the cyclical comovements between crude oil prices and US GDP, taking into account the decline in the volatility of US GDP growth that has occurred since the mid-1980s.Our main findings suggest that before 1984:Q1, the crude oil prices were leading the US GDP cycle by 3 quarters and Granger cause US GDP. In contrast, after 1984:Q1, the crude oil prices were lagging the US business cycle, and a reverse causality is found to run from US GDP to oil prices. The multiscale Granger causality tests globally corroborate theses results.     

The effects of oil price shocks on the economies of the Gulf Co-operation Council countries: Nonlinear analysis

This paper examines the effects of oil price shocks on the real GDP of the Gulf Cooperation Council (GCC) countries. The empirical method used is the nonlinear cointegrating autoregressive distributed lag (NARDL) model of Shin et al. (2013) in which short-run and long-run nonlinearities are introduced via positive and negative partial sum decompositions of the explanatory variable(s). The results suggest evidence of asymmetries in all the cases. We find significant positive oil price changes in all the cases with the expected positive sign, implying that increases in oil price lead to increases in real GDP. Conversely, negative oil price changes are significant for only Kuwait and Qatar with the expected positive sign, suggesting that decreases in oil price lead to decreases in their real GDP. Further analysis implemented using panel data shows that positive oil prices changes increase real GDP and negative changes decrease real GDP. Overall, the results suggest that positive oil price changes have a considerably larger impact on real GDP than negative changes.     

Oil price effects on personal consumption expenditures

This paper uses a logistic smooth transition model to examine the impact of rising oil prices on personal consumption expenditures in open and industrialized economies. The empirical results suggest a nonlinear and asymmetric relation between oil price changes and personal consumption expenditures. In particular, the effects of rising oil prices on personal consumption expenditures are greater than those of falling oil prices. While oil price changes affect personal consumption expenditures via real balance effects, smooth transition effects also come into play. Below a threshold value, an increase in oil prices reduces personal consumption expenditures. In other words, in the face of uncertainty regarding future oil prices, consumers initially rationally postpone spending. However, once oil prices above the threshold after a prolonged upward trend, the prices of domestic production factors rise. This fuels continued price hikes and further increases personal consumption expenditures until a cost-pushed inflation takes hold. Due to differences in economic developments and structures, the effects of rising oil prices vary from one country to another, with different countries usually to different monetary policies from each other. As a result, personal consumption expenditures also show various patterns across countries.     

Assessing the effect of oil price on world food prices: Application of principal component analysis

The objective of this paper is to investigate the co-movement of food prices and the macroeconomic index, especially the oil price, by principal component analysis to further understand the influence of the macroeconomic index on food prices. We examined the food prices of seven major products: eggs, meat, milk, oilseeds, rice, sugar and wheat. The macroeconomic variables studied were crude oil prices, consumer price indexes, food production indexes and GDP around the world between 1961 and 2005. We use the Scree test and the proportion of variance method for determining the optimal number of common factors. The correlation coefficient between the extracted principal component and the macroeconomic index varies between 0.87 for the world GDP and 0.36 for the consumer price index. We find the food production index has the greatest influence on the macroeconomic index and that the oil price index has an influence on the food production index. Consequently, crude oil prices have an indirect effect on food prices.     

Have European gas prices converged?

The development of a single European market for gas has been a goal of EU policy makers since the Single European Act (SEA) of 1986. EU Directives of 1996 and 1998 put these aspirations into action. However, casual empiricism suggests that convergence may have begun before this. This paper investigates whether gas prices in Europe have converged since 1978. Using annual data, three empirical tests for convergence are applied to gas prices for six EU Member States; a simple test for β-convergence; a cointegration test; and Nahar and Inder's [2002. Testing convergence in economic growth for OECD countries. Applied Economics 34, 2011–2022] test. The results from two of these three tests suggest that convergence did occur for most of the countries in the sample over this period.     

Analyzing energy consumption and GDP nexus using maximum entropy bootstrap: The case of Turkey

We employ a maximum entropy bootstrap based framework to analyze the energy consumption and real GDP nexus between 1950 and 2006 in Turkey. Our approach provides more accurate inference in comparison to conventional hypothesis tests based on asymptotic theory. It also avoids preliminary testing and shape-destroying transformations such as differencing and detrending. The bivariate analysis as well as a multivariate framework controlling for exchange rate and oil prices shows no evidence of a causal relation. Our results are robust to both the number of lags and the time period chosen. We also perform a cointegration analysis of the data and point out a common misunderstanding in the literature regarding the concept of causation.     

Electricity consumption and economic growth: a time series experience for 17 African countries

While the availability of electricity by itself is not a panacea for the economic and social problems facing Africa, the supply of electricity is nevertheless believed to be a necessary requirement for Africa's economic and social development. This paper tests the long-run and causal relationship between electricity consumption per capita and real gross domestic product (GDP) per capita for 17 African countries for the period 1971–2001 using a newly developed cointegration test proposed by Pesaran et al. (2001) and using a modified version of the Granger causality test due to Toda and Yamamoto (1995). The advantage of using these two approaches is that they both avoid the pre-testing bias associated with conventional unit root and cointegration tests. The empirical evidence shows that there was a long-run relationship between electricity consumption per capita and real GDP per capita for only 9 countries and Granger causality for only 12 countries. For 6 countries there was a positive uni-directional causality running from real GDP per capita to electricity consumption per capita; an opposite causality for 3 countries and bi-directional causality for the remaining 3 countries. The result should, however, be interpreted with care as electricity consumption accounts for less than 4% of total energy consumption in Africa and only grid-supplied electricity is taken into account.     

OPEC's kinked demand curve

Asymmetric effects of oil prices on the macroeconomy imply multiple equilibrium prices for OPEC. I estimate world demand for crude oil, non-OPEC supply, and the effects of changes in price on world GDP using quarterly data covering 1973 to 2010. If OPEC's marginal cost is $20/bbl in 2014:III, and its discount rate is zero, estimated equilibrium prices are $44–88/bbl. Multiple equilibria incent OPEC to tolerate unstable prices, which, because of the asymmetry, lower world GDP. Both policies that increase responsiveness to price and policies that lower net demand to OPEC narrow and lower the range of equilibrium prices, but the former are more effective at doing so. OPEC responds to changes in the discount rate in the opposite way from competitive producers, so policies that secure oil-related property rights in OPEC countries and other policies that lower OPEC's discount rate narrow and lower the range of equilibrium prices. Monetary policy is more effective at accelerating or slowing macroeconomic activity the larger is OPEC's market share.     

Testing persistence of WTI and Brent long-run relationship after the shale oil supply shock

In the paper, we study the long-run relationship in the WTI-Brent oil time series, taking into account the occurrence of two relevant events: the rise of shale oil production, in early 2011, and the widening and closing of the WTI-Brent price spread, from 2011 to 2014. Monthly data of WTI and Brent crude oil prices, as well as US shale oil quantities from January 2000 to December 2017 is used for the analyses. The empirical results of the cointegration tests with structural breaks show that two structural break occurs, in February 2011 and in October 2014. We then estimate a Vector Error Correction Model (VECM), considering the structural break suggested by the cointegration test results, the timing of the rise in shale oil production and the dynamics of the WTI-Brent price spread. Our analysis reveals that WTI and Brent crude oil prices have had a long-run relationship up to 2011; no cointegration existed during the period of widening of the spread; again, a new long-run relationship arises after the closing of the gap, which includes the shale oil production. In the last period, the cross price elasticity of Brent on WTI slightly reduces compared to the pre-2011 era, whilst the shale oil production increases its importance in explaining the long-run relationship between WTI and Brent fivefold. Using the Generalized Impulse Response Functions (GIRFs) we finally study the impact of exogenous shocks on the variables, showing that in the first period, with limited shale oil production, oil prices reacted to shale oil and not vice versa. After October 2014, the opposite becomes true and shale oil production follows changes in both WTI and Brent prices.