Skip to main content

Advertisement

SpringerLink
Log in

Oil price shocks and energy consumption in GCC countries: a system-GMM approach

  • Published:
Environment, Development and Sustainability Aims and scope Submit manuscript

Abstract

A close association prevails among energy consumption, energy prices, and income levels. This association has implications for the growth of an economy. Hence, incorporating energy consumption properties in an economy is crucial for policy design purposes especially in the case of energy-exporting countries of the Gulf Cooperation Council (GCC). This paper studies the correlates of energy consumption with an emphasis on shocks in crude oil prices, changes in GDP per capita, carbon dioxide emissions, trade, population growth, and other key indicators using a panel of GCC countries over 30 years of data period (1985–2014). The study provides direct evidence of the oil price shocks and energy consumption using a static panel (POLS and FE) and dynamic panel (system-GMM) estimation technique. The finding shows that oil price shocks affect energy consumption negatively. The greatest positive effect on energy consumption is observed with an increase in GDP per capita, as a percent increase in it increases energy consumption by 0.65 percent. It is followed by trade openness which increases energy consumption by 0.14 percent. While the greatest negative effect on energy consumption is observed by a rise in oil prices, as a percent increase in oil prices reduces energy consumption by approximately 0.22 percent. The study also finds that higher energy consumption increases carbon dioxide emissions as energy consumption is growing with population growth. Thus, it is important to upscale the adoption of renewable energy sources, adopt energy-efficient technologies, reduce energy subsidies, and practice demand-side management.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Source Author's

Fig. 2

Source Author's

Fig. 3

Source Author's

Fig. 4

Source Author's

Similar content being viewed by others

References

  • Alarenan, S., Gasim, A. A., & Hunt, L. C. (2019). Measuring underlying energy efficiency in the GCC countries using a newly constructed dataset. Energy Transitions, 3, 31–44.

    Google Scholar 

  • Al-Badi, A., & Al-Mubarak, I. (2019). Growing energy demand in the GCC countries. Arab Journal of Basic and Applied Sciences, 26(1), 488–496.

    Google Scholar 

  • Al-Iriani, M. A. (2006). Energy–GDP relationship revisited: an example from GCC countries using panel causality. Energy Policy, 34(17), 3342–3350.

    Google Scholar 

  • Anderson, T. W., & Hsiao, C. (1981). Estimation of dynamic models with error components. Journal of the American Statistical Association, 76(375), 598–606.

    Google Scholar 

  • Andrews, D. W. (2005). Cross-section regression with common shocks. Econometrica, 73(5), 1551–1585.

    Google Scholar 

  • Apergis, N., & Payne, J. E. (2011). The renewable energy consumption–growth nexus in Central America. Applied Energy, 88(1), 343–347.

    Google Scholar 

  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297.

    Google Scholar 

  • Arellan, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error components models. Journal of Econometrics, 68(1), 29–51.

    Google Scholar 

  • Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143.

    Google Scholar 

  • Caner, M., & Hansen, B. E. (2004). Instrumental variable estimation of a threshold model. Econometric Theory, 20(5), 813–843.

    Google Scholar 

  • Caporale, G. M., Gil-Alana, L. A., Monge, M. (2019). Energy consumption in the GCC countries: Evidence on persistence. CESifo working paper series 7470, CESifo Group Munich.

  • Çoban, S., & Topcu, M. (2013). The nexus between financial development and energy consumption in the EU: A dynamic panel data analysis. Energy Economics, 39, 81–88.

    Google Scholar 

  • Dedeoğlu, D., & Kaya, H. (2013). Energy use exports imports and GDP: New evidence from the OECD countries. Energy Policy, 57, 469–476.

    Google Scholar 

  • Dudley, B. (2018). BP statistical review of world energy. BP Statistical Review London UK. Accessed Aug 6 2018

  • Gasimli, O., Haq, I., Naradda, G. S. K., Shihadeh, F., Rajapakshe, P. S. K., & Shafiq, M. (2019). Energy trade urbanization and environmental degradation nexus in Sri Lanka: Bounds testing approach. Energies, 12, 1655.

    Google Scholar 

  • Ghalayini, L. (2011). The interaction between oil price and economic growth. Middle Eastern Finance and Economics, 13, 127–141.

    Google Scholar 

  • Gil-Alana, L. A., Loomis, D., & Payne, J. E. (2010). Does energy consumption by the US electric power sector exhibit long memory behavior. Energy Policy, 38(11), 7512–7518.

    Google Scholar 

  • Hamilton, J. D. (1983). Oil and the macroeconomy since World War II. Journal of Political Economy, 91(2), 228–248.

    Google Scholar 

  • Hamilton, J. D. (2003). What is an oil shock? Journal of Econometrics, 113(2), 363–398.

    Google Scholar 

  • Hamilton J D (2009) Causes and consequences of the oil shock of 2007–08. Working paper No. w15002. National Bureau of Economic Research.

  • Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93(2), 345–368.

    Google Scholar 

  • Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica: Journal of the Econometric Society, 50(4), 1029–1054.

    Google Scholar 

  • Haque, M. I. (2019). The economic and energy efficiencies of GCC states: A DEA approach. Management Science Letters, 9, 1–12.

    Google Scholar 

  • Haque, M. I., & Khan, M. R. (2019). Role of oil production and government expenditure in improving human development index: Evidence from Saudi Arabia. International Journal of Energy Economics and Policy, 9(2), 251.

    Google Scholar 

  • Howarth, N., Galeotti, M., Lanza, A., & Dubey, K. (2017). Economic development and energy consumption in the GCC: An international sectoral analysis. Energy Transitions, 1(2), 6.

    Google Scholar 

  • Huda, M. S. (2020). Energy cooperation in South Asia: Utilizing natural resources for peace and sustainable development. Abingdon: Routledge.

    Google Scholar 

  • Huda, M. S., & McDonald, M. (2016). Regional cooperation on energy in South Asia: Unraveling the political challenges in implementing transnational pipelines and electricity grids. Energy Policy, 98, 73–83.

    Google Scholar 

  • IEA (2019) World energy outlook 2019. IEA Paris. https://wwwieaorg/reports/world-energy-outlook-2019

  • IRENA. (2019). Renewable energy market analysis: GCC 2019. Abu Dhabi: International Renewable Energy Agency. ISBN: 978-92-9260-096-9.

    Google Scholar 

  • Khan, M. R., & Haque, M. I. (2019). Oil development and military expenditure: A panel data evidence from the Middle East. Journal of Security Sustainability Issues, 8(4), 549–568.

    Google Scholar 

  • Krane, J. (2015). Stability versus sustainability: Energy policy in the Gulf monarchies. The Energy Journal, 36(4), 1–21.

    Google Scholar 

  • Kriskkumar, K., & Naseem, N. A. M. (2019). Analysis of oil price effect on economic growth of ASEAN net oil exporters. Energies, 12, 3343.

    Google Scholar 

  • Lardic, S., & Mignon, V. (2008). Oil prices and economic activity: An asymmetric cointegration approach. Energy Economics, 30(3), 847–855.

    Google Scholar 

  • Le, T. H. (2016). Dynamics between energy output openness and financial development in sub-Saharan African countries. Applied Economics, 48(10), 914–933.

    Google Scholar 

  • Mahmood, H., & Furqan, M. (2020). Oil rents and greenhouse gas emissions: Spatial analysis of Gulf Cooperation Council countries. Environment, Development and Sustainability, 1-19.

  • Mbarek, M. B., Ali, N. B., & Feki, R. (2014). Causality relationship between CO2 emissions, GDP and energy intensity in Tunisia. Environment, Development and Sustainability, 16(6), 1253–1262.

    Google Scholar 

  • Mehrara, M. (2007). Energy consumption and economic growth: The case of oil exporting countries. Energy policy, 35(5), 2939–3294.

    Google Scholar 

  • Mohammadi, H., & Parvaresh, S. (2014). Energy consumption and output: Evidence from a panel of 14 oil-exporting countries. Energy Economics, 41, 41–46.

    Google Scholar 

  • Mory, J. F. (1993). Oil prices and economic activity: is the relationship symmetric? The Energy Journal, 14(4), 151–161.

    Google Scholar 

  • Narayan, P. K., & Smyth, R. (2009). Multivariate Granger causality between electricity consumption exports and GDP: Evidence from a panel of Middle Eastern countries. Energy Policy, 37(1), 229–236.

    Google Scholar 

  • Nasreen, S., & Anwar, S. (2014). Causal relationship between trade openness economic growth and energy consumption: A panel data analysis of Asian countries. Energy Policy, 69, 82–91.

    Google Scholar 

  • Omri, A. (2013). CO2 emissions energy consumption and economic growth nexus in MENA countries: Evidence from simultaneous equations models. Energy Economics, 40, 657–664.

    Google Scholar 

  • Omri, A., Daly, S., & Nguyen, D. K. (2015). A robust analysis of the relationship between renewable energy consumption and its main drivers. Applied Economics, 47(28), 2913–2923.

    Google Scholar 

  • Omri, A., Daly, S., Rault, C., & Chaibi, A. (2015). Financial development environmental quality trade and economic growth: What causes what in MENA countries. Energy Economics, 48, 242–252.

    Google Scholar 

  • Osman, M., Gachino, G., & Hoque, A. (2016). Electricity consumption and economic growth in the GCC countries: Panel data analysis. Energy Policy, 98, 318–327.

    Google Scholar 

  • Ozturk, I., Aslan, A., & Kalyoncu, H. (2010). Energy consumption and economic growth relationship: Evidence from panel data for low and middle income countries. Energy Policy, 38(8), 4422–4428.

    Google Scholar 

  • . Peng, Z., & Wu, Q. (2019). Evaluation of the relationship between energy consumption, economic growth, and CO2 emissions in China transport sector: The FMOLS and VECM approaches. Environment Development and Sustainability, 1–25.

  • Sadorsky, P. (2011). Trade and energy consumption in the Middle East. Energy Economics, 33(5), 739–749.

    Google Scholar 

  • Sadorsky, P. (2012). Energy consumption output and trade in South America. Energy Economics, 34(2), 476–488.

    Google Scholar 

  • Sargan, J. D. (1958). The estimation of economic relationships using instrumental variables. Econometrica: Journal of the Econometric Society, 26, 393–415.

    Google Scholar 

  • Shahbaz, M., Lahiani, A., Abosedra, S., & Hammoudeh, S. (2018). The role of globalization in energy consumption: a quantile cointegrating regression approach. Energy Economics, 71, 161–170.

    Google Scholar 

  • Shahbaz, M., Nasreen, S., Ling, C. H., & Sbia, R. (2014). Causality between trade openness and energy consumption: What causes what in high middle and low income countries. Energy Policy, 70, 126–143.

    Google Scholar 

  • Taghizadeh-Hesary, F., Yoshino, N., Rasoulinezhad, E., & Chang, Y. (2019). Trade linkages and transmission of oil price fluctuations. Energy Policy, 133, 110872.

    Google Scholar 

  • Vohra, R. (2017). The impact of oil prices on GCC economies. International Journal of Business and Social Science, 8(2), 7–14.

    Google Scholar 

  • Xue, B., Geng, Y., Müller, K., Lu, C., & Ren, W. (2014). Understanding the causality between carbon dioxide emission fossil energy consumption and economic growth in developed countries: an empirical study. Sustainability, 6, 1037–1045.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. College of Business Administration, Prince Sattam Bin Abdulaziz University, Al-Kharj, Saudi Arabia

    Mohammad Imdadul Haque

Authors
  1. Mohammad Imdadul Haque
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Mohammad Imdadul Haque.

Ethics declarations

Conflict of interest

The author reports no conflict of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Haque, M.I. Oil price shocks and energy consumption in GCC countries: a system-GMM approach. Environ Dev Sustain 23, 9336–9351 (2021). https://doi.org/10.1007/s10668-020-01027-y

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10668-020-01027-y

Keywords

Search

Navigation