Alko ahi, Kol hoom; Bous ih, Jihen
A icle
The nexus be ween oil consump ion, economic g ow h,
and c ude oil p ices in Saudi A abia
Economies
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Alko ahi, Kol hoom; Bous ih, Jihen (2024) : The nexus be ween oil consump ion,
economic g ow h, and c ude oil p ices in Saudi A abia, Economies, ISSN 2227-7099, MDPI, Basel,
Vol. 12, Iss. 5, pp. 1-16,
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Ci a ion: Alko ahi, Kol hoom, and
Jihen Bous ih. 2024. The Nexus
be ween Oil Consump ion, Economic
G ow h, and C ude Oil P ices in
Saudi A abia. Economies 12: 105.
h ps://doi.o g/10.3390/
economies12050105
Academic Edi o : B an ley T. Liddle
Recei ed: 22 Ma ch 2024
Re ised: 17 Ap il 2024
Accep ed: 24 Ap il 2024
Published: 29 Ap il 2024
Copy igh : © 2024 by he au ho s.
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economies
A icle
The Nexus be ween Oil Consump ion, Economic G ow h,
and C ude Oil P ices in Saudi A abia
Kol hoom Alko ahi 1and Jihen Bous ih 2,3,*
1Finance Depa men , College o Business Adminis a ion, P ince Sul an Uni e si y, Ra ha S ee ,
P.O. Box 66833, Riyadh 11586, Saudi A abia; [email p o ec ed]
2Depa men o Economics, College o Business and Adminis a ion, P incess Nou ah bin Abdul ahman
Uni e si y, P.O. Box 84428, Riyadh 11671, Saudi A abia
3Bes Mod Labo a o y, High Ins i u e o Managemen -Tunis, Le Ba do 2000, Tunisia
*Co espondence: [email p o ec ed]
Abs ac : The ene gy e olu ion in Saudi A abia has accele a ed signi ican ly since 2016, d i en by
he Na ional Vision 2030. Signi ican changes o ene gy subsidies ook place, and he enewable
ene gy sec o has seen apid g ow h. The pape p esen s an empi ical analysis o he Saudi ene gy
ansi ion by emphasizing he d i e s o uel consump ion in KSA. I p ima ily a emp s o explo e
he long- un (LR) connec ion be ween oil consump ion and se e al economic a iables such as
economic g ow h, c ude oil p ices, in es men , and he labo o ce in Saudi A abia (KSA) om
1991 up o 2021. The pape implemen ed he ec o e o co ec ion model (VECM) and pe o med
di e en diagnos ic es s o p o ide mo e e idence abou he alidi y and obus ness o he es s.
The empi ical indings highligh ed how impo an he labo o ce, sa ings, GDP, and c ude oil p ice
a e in de e mining oil consump ion o KSA. The law o demand is signi ican ly p esen , which
nega i ely a ec s oil consump ion o KSA as an oil expo ing coun y. The esul s also suppo ed he
exis ence o a long- e m di ec co ela ion be ween he a iables and oil consump ion. Fu he mo e,
he sho - e m es ima ion highligh ed ha only sa ing has a nega i e impac on oil consump ion
o a single lagged pe iod. Ou indings p o ide go e nmen s and egula o s wi h u he incen i e
o slow he expansion in oil consump ion, as a la ge labo o ce is demanding mo e oil o a ain
he a ge , as e economic g ow h, and inc eased sa ings a e all con ibu ing ac o s. Ou indings
a e signi ican because hey can assis policymake s, in es o s, and egula o s in gene a ing mo e
e icien oil subs i u es and making hem a o dable o he economy.
Keywo ds: uel ene gy consump ion; oil expo e coun y; enewable ene gy; c ude oil p ice;
ene gy ansi ion
1. In oduc ion
The ene gy shi is al eady well unde way and picking up speed (Xiao e al. 2021). In
mos o he wo ld, wind and sola ene gy a e he mos a o dable sou ces o elec ici y;
enewable ene gy is esponsible o almos all inc eases in elec ical capaci y wo ldwide;
he use o elec ic ehicles (EVs) is g owing quickly; and manu ac u e s a e shi ing o
all-elec ic ehicles. The ad ancemen o echnology and he implemen a ion o policies like
China’s mos ecen Fi e-Yea Ini ia i e o Renewable Ene gy De elopmen , he Eu opean
REPowe EU ini ia i e, and he US In la ion Reduc ion Ac a e going o ein o ce hese
ends. The ansi ion has also been u he accele a ed by he ise in ossil ene gy p ices
since Russia’s in asion o Uk aine.
Con en ional oil and gas businesses a e acing a di icul si ua ion as hey a emp o
adjus hei business models o he new eali ies o he ene gy indus y while de ending
he signi icance o hei ope a ions. The wo ld will con inue o ely on ossil uels o
some ime o come. Today, many na ions belie e ha geo he mal, idal, sola , and wind
ene gy will domina e ou ene gy supplies in he u u e (Abban e al. 2023). We cu en ly
Economies 2024,12, 105. h ps://doi.o g/10.3390/economies12050105 h ps://www.mdpi.com/jou nal/economies
Economies 2024,12, 105 2 o 16
ely excessi ely on ene gy sou ces ha will ine i ably un ou . Ou houses, wo kplaces,
educa ional ins i u ions, public s uc u es, and manu ac u ing acili ies a e all powe ed
by ossil uels. While hese ypes o ene gy p o ide hese sec o s wi h a dependable and
cos -e ec i e means o ope a ion, hey also con ibu e o daily emissions o damaging CO
2
in o he a mosphe e. To slow down and e en ually e e se he ha m done o he wo ld, we
hope ha enewable ene gy will comple ely eplace ossil uels one day. While enewable
ene gy o e s an excellen way o coun e ac he nega i e consequences o ossil uels, o he
easons need o be conside ed as well. A mo e sus ainable sys em mus be adop ed o
comba clima e change, as ossil uels a e he p ima y cause o his issue. Beyond ha , i is
also essen ial i we wan o supply he g owing ma ke wi h a o dable and easily a ailable
ene gy (De La Peña e al. 2022).
G owing en i onmen al conce ns ha e been pene a ing bo h public policy discussions
and business ac i i ies. In e na ional and na ional legal ac ions ha e igh ened en i on-
men al egula ions, while apid ad ancemen s in ene gy conse a ion and g een ene gy
ha e accele a ed inno a ion in hese ields (Nu¸ ăe al. 2024). Despi e hese conce ns, he
ossil uel ma ke con inues o be al e ed in mo e and mo e ob ious ways. In 2023
1
, ossil
uels accoun ed o mo e han 60% o he wo ld’s elec ici y gene a ed o da e. This is ue
e en i e e y majo economy is ac i ely implemen ing enewable ene gy sou ces.
When examining he mac oeconomic e ec s o he ene gy ansi ion, i is con enien
o concen a e on expo e s o ossil uels, as hey would see a signi ican e osion o hei
p ima y sou ce o expo and iscal e enue, necessi a ing a change o a new g ow h model.
The e o e, he goal o he pape is o u he he discussion by explo ing he main d i e s
o he ossil uel indus y o one o he mos impo an oil expo e s in he wo ld, which is
Saudi A abia. This pape will in es iga e he ela ionship in he sho un and he long un
o some main componen s o ene gy consump ion o he Saudi economy.
The capaci y o he oil sec o in he Kingdom o Saudi A abia (KSA) has been g owing
due o echnical ad ancemen s. The ou pu o adi ional oil ese es has been inc easing
bo h in olume and p oduc i i y, and i has been suppo ed by he shale oil indus y, which
is expanding quickly. I is expec ed ha global p essu e o educe he use o ossil uels
will ne e s op. Al hough con en ional ene gy sou ces a e sca ce, hei nega i e e ec s
ou weigh hei posi i e e ec s in e ms o economic g ow h (Zhao e al. 2022). Ne e heless,
con en ional ene gy is i al o achie ing ou pu le els ha suppo economic g ow h.
Fu he mo e, he widesp ead use and high consump ion a es o ossil uels a e con ibu ing
ac o s o he p esen wo ies abou hei deple ion (Madaleno and Noguei a 2023).
Oil ene gy con inues o play a c ucial ole o mos coun ies, despi e he deba e
su ounding he usage o subs i u e enewable ene gy esou ces like wa e , sola , and
nuclea powe , which is becoming inc easingly hea ed. So, changes in he p ice o oil could
ha e a signi ican mac oeconomic impac on na ions ha expo as well as hose ha impo
(Bou i e al. 2020). Oil is a key ac o in de e mining p oduc ion cos s o he i s g oup, and
i is he second main sou ce o go e nmen e enue. Oil p ice luc ua ions ha e di e ing
e ec s on expo ing and impo ing na ions. Expo ing na ions ely hea ily on income om
oil. The e o e, he money o inance de elopmen p ojec s will inc ease as oil p ices ise.
Academics and policymake s ha e long deba ed domes ic uel p ices in oil-expo ing
na ions, and i con inues o be a c ucial ac o in hese na ions’ public policy decisions
(Coady e al. 2018;A alla e al. 2018;Aune e al. 2017). Al hough go e nmen s may educe
he p ice o domes ic gasoline o some social and comme cial easons, his p ac ice is
some imes c i icized because i encou ages excessi e and ine icien domes ic ene gy usage
and cos s go e nmen s money by educing oil expo s. Howe e , his app oach may be
less e ec i e han p icing domes ic uels acco ding o he wo ldwide ma ke . Hence, he
e ec i eness o iscal and mone a y policies is g ea ly impac ed by luc ua ions in oil p ices
(Siddiqui e al. 2022). Ye , he nega i e in luence inc eases he unce ain y o he inancial
and eal agg ega es because o he oil p ice ola ili y, pa icula ly when he e a e impe ec
capi al ma ke s (Ki ous e al. 2016). Go e nmen s, on he o he hand, canno ab up ly
educe hei spending and hen con on a signi ican budge de ici .
Economies 2024,12, 105 3 o 16
In he las 10 yea s, KSA’s domes ic oil consump ion has inc eased nine imes, on
a e age by 16% a yea , o a ound 4 million ba els daily. Only he US, China, India, Japan,
and Russia consume mo e oil han KSA, which is cu en ly he wo ld’s six h-la ges oil
consume . Mo e han one- ou h o KSA’s p oduc ion is now consumed domes ically. I
his ise pe sis s, which we an icipa e will be he case, i will signi ican ly a ec KSA’s oil
expo s and p oduc ion.
The main pu pose o his esea ch is o explo e he ac o s ha impac he consump ion
o oil and, he e o e, o mula e s a egies o educe he dependence on uel ene gy, as he
consump ion o oil is he p ima y ene gy sou ce in he egion, and we expec ha i will
decline in he u u e owing o he widesp ead use o enewable ene gy supplies. In ac ,
in he sho e m, he e a e se e al possible di ec ions o he changeo e . In es men
es ic ions on ossil uels migh cause ene gy p ices o spike apidly o a leng hy pe iod,
and obs acles in he ma ke s o me als and mine als could cause he ansi ion’s cos s o
inc ease o slow down. The long- e m scena io could look like his: Mos o he wo ld,
especially Eas and Sou h Asia, should bene i om swi ching o mo e a o dable, locally
de i ed ene gy sou ces in place o cos ly, en i onmen ally damaging ossil uels. The
dec ease in cu en ene gy supplies is likely o ou weigh he economic bene i s o clean
ene gy o majo ossil uel p oduce s, pa icula ly hose in he Middle Eas and No h
A ica (Pea ce 2023). This pape is an a emp o explo e he impac in he sho un and
long un o economic g ow h, sa ing, and he labo o ce on c ude oil consump ion. By a ,
his wo k ep esen s he opening a emp o examine his ela ionship o he Kingdom o
Saudi A abia o be e unde s and he ansi ion owa d g een ene gies. The o he pa s o
he pape will appea as ollows: Sec ion 2will in es iga e he heo e ical backg ound and
he e iew o he li e a u e. We p esen he da a and echniques ha a e implemen ed in he
nex sec ion. Sec ion 4shows he esul s, and he inal sec ion will include ecommenda ions
and a conclusion.
2. Theo e ical Backg ound and Li e a u e Re iew
Ene gy is a necessa y componen o economic g ow h (Liu and Hao 2018). Concu -
en ly, he p ima y cause o g eenhouse gas emissions, which con ibu e o clima e change,
is ene gy consump ion (Chang 2012;Alsheh y and Belloumi 2015). One o he main issues
acing he coming yea s will be how o simul aneously accomplish ene gy sus ainabili y,
economic de elopmen , and clima e change mi iga ion. Decoupling ising ene gy con-
sump ion om economic g ow h and o he mac oeconomic a iables means i is c ucial o
know he unde lying causes o his end (Wang e al. 2014).
Acco ding o he heo y, U i (1982) and Beens ock and Dalziel (1986) demons a e
ha , unde ce ain assump ions, an exp ession o ene gy demand is cons uc ed using
he p oduc ion equa ion and includes income and ene gy cos s as explana o y a iables.
Howe e , depending on he opic being in es iga ed, he ypical unc ion o ene gy demand
may no be an app op ia e pa adigm in a a ie y o scena ios, acco ding o Bha acha yya
and Timilsina (2010) and o he s. The ene gy demand equa ion was ewo ked and p esen ed
as ollows: No dhaus (1975), ollowed by Beens ock and Willcocks (1981), and Beens ock
and Dalziel (1986).
Q=F(K,L,E)(1)
whe e Q ep esen s he p oduc ion ou pu , K ep esen s capi al, L ep esen s Labo , E ep e-
sen s Ene gy and Fis a unc ion ha indica es he inno a ion o manu ac u ing p ocedu e
ha con e s inpu s o ou pu .
The Taylo expansion can be used o s a e Equa ion (1). The ollowing equa ion ep e-
sen s he Cobb-Douglas p oduc ion unc ion (Cobb and Douglas 1928;No dhaus 1975):
Q=AKαLβEγ(2)
whe e Ais he o e all ac o o p oduc i i y and,
α
,
β
, and
γ
, espec i ely, a e he p oduc ion
elas ici ies o capi al, labo , and ene gy.
Economies 2024,12, 105 4 o 16
Nume ous s udies ha e been conduc ed on he ea lie connec ion be ween labo ,
capi al, and ene gy, u ilizing a ious da a equencies, me hodologies, coun ies, and
pe iods. The esul s ha e a ied widely. Many schola s ha e in es iga ed he connec ion
be ween he use o ene gy and economic g ow h since Ape gis and Payne (2010). Bu no
conclusion has been eached. This undoub edly e eals ha u he ene gy esea ch is s ill
equi ed. This esul s om he ac ha he causal chain’s o ien a ion has impo an policy
ami ica ions. Ene gy conse a ion implies ha lowe ene gy consump ion could hu eal
GDP i ene gy plays a majo ole in economic g ow h (Eggoh e al. 2011).
Se e al empo al and spa ial scales ha e been used o in es iga e he ac o s ha
in luence ene gy use. Using s uc u al decomposi ion analysis (SDA), Lan e al. (2016)
b oke down he global ene gy oo p in om 1990 o 2010 and disco e ed ha GDP pe
capi a con ibu ed signi ican ly o he ise in global ene gy consump ion du ing his ime.
Om i e al. o e ed a ho ough in es iga ion o he ac o s in luencing he use o enewable
ene gy o a global panel o 64 coun ies and subg oups be ween 1990 and 2011 based on
income le els (Shahbaz e al. 2015).
Bilgen (2014) s udied he wo ldwide ene gy consump ion o a ious uel ypes, in-
dus y sec o s, and hei e ec s on he en i onmen . He ecommended inc easing ene gy
e iciency and implemen ing ela ed inno a ions o lowe ene gy consump ion.
Ramana han (2006) examined he ela ionship be ween ene gy consump ion and
economic g ow h using da a om 1980 o 2001. Based on he assump ion o a ixed GDP in
2025, he p ojec ed he associa ion be ween non- ossil ene gy consump ion and GDP g ow h.
A wide ange o s udies examine he ene gy use o a pa icula na ion, while o he s
ocus on egions like he OECD and he Eu opean Union. Be ween 1995 and 2000, he
ene gy in ensi y end ha a ec ed Li huania’s a ious indus ies as well as he coun y
was examined by Baležen is e al. (2011). The bigges in luence on he decline in ene gy
in ensi y came om ene gy sa ings in he esiden ial and se ice sec o s. Howe e , his
s udy did no examine di e en ypes o ene gy; a he , i concen a ed solely on sec o s.
Fu he mo e, s udies conduc ed in de eloping na ions p ima ily concen a e on China and
India, in con as o s udies conduc ed on ene gy use in de eloped coun ies.
Go us (2017) looked a he connec ion be ween KSA’s economic g ow h and oil p o-
duc ion be ween 1970 and 2013. I also uses he Boo s ap G ange causali y es and he
ARDL Bound es o explo e he causal associa ion be ween oil consump ion and economic
g ow h. Resul s show he long- un sensi i i y o economic g ow h o oil consump ion
and he coin eg a ion o a iables. Howe e , he Boo s ap G ange Causali y Tes esul s
demons a e he absence o a causal connec ion be ween ising economic ac i i y and oil
consump ion. We also ind ha (Osiobe 2019) used VECM echniques o examine he
connec ion be ween ene gy consump ion and GDP g ow h in Malaysia om 1970 o 2014.
Thei esul s show ha an inc ease in GDP inc eases CO2 emissions h ough a su ge in
ene gy use.
Wang and Li’s compa a i e s udy in 2016 e ealed he mos impo an a iables
in luencing China and India’s changes in ene gy consump ion be ween 1970 and 2012.
Wang e al. (2020) analyzed China, India, and he US and e ealed ha , whe eas income
and oil in ensi y we e he main d i e s in he US, coal in ensi y was a d i ing ac o in
China and India o ising ene gy consump ion. Nume ous academics ha e conduc ed
in-dep h examina ions o he ac o s ha in luence he ene gy consump ion o speci ic
indus ies in China, such as anspo a ion (Zhang e al. 2011), logis ics (Dai and Gao 2016),
and non e ous me als (Wang and Feng 2018). None heless, i is uncommon o ind an
in-dep h look ha add esses he ene gy consump ion o mul iple na ions.
Acco ding o esea ch by Pao and Tsai (2011), FDI and ene gy use a e causally ela ed
in bo h di ec ions. Zeng e al. (2020) conclude ha whe eas FDI in lux s imula es ene gy
consump ion, i s imula es FDI in low. Th ough ene gy consump ion, FDI indi ec ly
suppo s economic g ow h. Wahyudi and Palupi (2023) e eal a bidi ec ional connec ion
be ween FDI and ene gy consump ion, as well as a wo-way ela ionship be ween FDI and
labo o ce pa icipa ion a e (LFR). While LFR has a negligible in e se impac on ene gy
Economies 2024,12, 105 5 o 16
consump ion o e he LR, FDI has a conside able bene icial impac on ene gy consump ion.
LFR and FDI, howe e , ha e no bea ing in he nea un. This s udy aids in he making o
decisions abou ene gy, o eign di ec in es men , and inc easing he numbe and calibe o
wo ke s in OECD na ions.
Typically, ma ke e iciency and ene gy ma ke ola ili y a e aken in o conside a ion
when analyzing ene gy p icing o ossil uels, such as coal, na u al gas, and c ude oil
(Khan e al. 2022;Olubusoye e al. 2021;Wang e al. 2022). As ossil uels a e mos ly used
up on in he supply chain as in e media e inpu s, ising ene gy p ices ha e a knock-on
impac ha aises cos s h oughou he whole global supply chain. Such supply-chain
dis up ions a e he subjec o nume ous published s udies (Du ugbo e al. 2020).
Ano he essen ial componen o he economy is labo , along wi h capi al and inpu s
like ene gy. Acco ding o Çe in (2019), he labo o ce pa icipa ion a e is hough o be a
be e indica o o he labo ma ke . (Kusai i e al. 2023) s udy claims ha au oma ion is
cu en ly aking o e om echnology, which has an impac on he s uc u e o he labo
ma ke . Consequen ly, i can lead o a d op in he unc ion o he wo k o ce, which migh
cause a change in in es men ha u ns an indus y in o one ha is mo e capi al-in ensi e
han labo -in ensi e. The e o e, a ise in income and consequen ly an inc ease in ene gy
consump ion ha e an impac on a dec ease in labo o ce pa icipa ion. The indings o
Kalan zis and Niczypo uk’s esea ch in 2022 indica e a causal ela ionship be ween labo
p oduc i i y and ene gy e iciency. The au ho s demons a e how an inc ease in ene gy
e iciency, induced by a dec ease in ene gy consump ion, will lead o an inc ease in labo
p oduc i i y. Rising p oduc i i y is in luenced by inc eased labo o ce pa icipa ion, and
ising p oduc i i y can inc ease ene gy demand. A policy including he public and p i a e
sec o s is equi ed o add ess his p oblem and aise he s anda d o indus ial inpu s ha
employ enewable ene gy sou ces o boos ene gy e iciency.
3. Me hodology
This sec ion is designed o demons a e he econome ic model he s udy will im-
plemen and elabo a e on he da abases used o ex ac he s a is ics. I also e eals he
empi ical model used in he analysis, and hence, i a emp s o assess he empi ical esul s
o he LR connec ion amongs ene gy consump ion and he chosen economic a iables.
Ene gy consump ion emains a c ucial sou ce o ene gy in KSA, as i is one o he wo ld’s
op oil-ex ac ing and dis ibu ing na ions. Howe e , wi h he widesp ead use o g een
ene gy and o he ene gy subs i u es, we need o esea ch i he usage o oil as he key
sou ce o ene gy will diminish in he u u e wi h he ise o o he ene gy subs i u es.
3.1. Da a and Desc ip i e S a is ics
This s udy has chosen some economic indica o s based on he expec ed ela i e
impo ance o hese indica o s o KSA’s use o ene gy. The da a we e selec ed om wo
di e en sou ces: he “S a is ical Re iew o Wo ld Ene gy”, whe e he ene gy consump ion
(OilC) and c ude oil p ices (Pc ude) da a we e ob ained, and he WBT (Wo ld Bank Tables)
o e ie e he da a o GDP, he g oss domes ic sa ing (S), and he labo o ce (L). Re e o
Table 1.
To gain a be e unde s anding o he ansi ion om ossil uel consump ion o
clean ene gy consump ion, and as he KSA announced nume ous e o ms o educe i s
dependence on oil o ossil uels as well as in oduce new clean ene gy sou ces, a longe
ime span was selec ed. Howe e , he pe iod was chosen based on he a ailabili y o he
da a o all he indica o s. As he labo o ce o KSA has only been a ailable om 1991 un il
2021, he da a we e collec ed o e ha pe iod. Fo he es ima ion, we used da a on annual
equency. The es ima ion is pe o med using EViews 12. An analysis o ans o ming he
logs was employed o he indica o s ( aking na u al loga i hms) o s abilize he a iance o
he se ies and educe po en ial he e oskedas ici y. The log ans o ma ion no only induces
s a iona i y in he ma ix o a iance-co a iance, bu i is also help ul as he g ow h a e o
he a iable is ep esen ed by aking he log di e ence o he a iable (Tang and Tan 2013).
Economies 2024,12, 105 6 o 16
In addi ion, i should be no ed ha he pe iod was selec ed because i is es ic ed by he
o e pa ame e iza ion p oblem, which e e s o he p oblem ha exis s when he numbe
o obse a ions used is ewe han he numbe o es ima ed pa ame e s. I i pe sis s,
he es ima ion echnique will be inadequa e, and he used model will no be compa ible
(Hapsa i e al. 2021).
Table 1. Va iable de ini ions and sou ces.
Fac o
Abb e ia ion
Desc ip ion Sou ce
Dependen Va iable
Oil Consump ion lOilC Oil Consump ion in housands ba el pe day S a is ical Re iew o Wo ld
Ene gy (2023)
Independen Va iables
GDP lGDP GDP pe capi a (cu en USD) Wo ld Bank (2023)
C ude oil p ices lPc ude Global c ude oil p ices, a e measu ed in cu en US
dolla s pe ba el.
S a is ical Re iew o Wo ld
Ene gy (2023)
G oss domes ic
sa ings (% GDP) lS Calcula ed by sub ac ing he expendi u e on inancial
consump ion om GDP. Wo ld Bank (2023)
Labo Fo ce
pa icipa ion a e lL
Labo o ce pa icipa ion a e, male (% o male popula ion
ages 15–64) Wo ld Bank (2023)
3.2. Model
This s udy examines he de e minan s o ene gy consump ion a he SR and LR o
KSA. Theo e ically, he ene gy consump ion unc ion ela es c ude oil p ices o he o al
ou pu o he economy. The e o e, he ene gy consump ion equa ion could be modeled as
in Equa ion (3):
OilC =F(Pc ude ,GDP )(3)
whe e OilC, Pc ude, and GDP a e explained in Table 1. In line wi h he pu pose o he
cu en analysis, mo e a iables we e added, such as sa ings and labo o ce. Based on he
esea ch echniques o Tang and Tan (2013) and Shahbaz and Rahman (2010), he sugges ed
esea ch model can now be w i en as ollows:
lOilC =θ0+θ1lGDP +θ2lPc ude +θ3lSi +θ4lL +ε (4)
whe e
θi
is he coe icien o be es ima ed;
i=
0,
. . .
, 4. And subsc ip s
deno e yea ;
=1, 2, . . . ., 24.
The i s model o es ima e he join dynamic beha io o a sys em o ime se ies
equa ions is ec o au o eg ession analysis (VAR). Howe e , o he esul s o be legi ima e,
his model equi es all he se ies o sa is y he s a iona i y condi ion in le el in addi ion
o he i s di e ence. Un o una ely, he e is a possibili y o losing impo an insigh in o
he in e ela ion among hese se ies, especially o he LR s ochas ic end, mos ly known
as he coin eg a ion be ween he le els, caused by di e encing he da a. An al e na i e
me hod ini ia ed by Johansen (1995) is VECM, which is widely used o assess he c edibili y
o le el eg essions and whe he LR ela ionships (coin eg a ion) amongs hese indica o s
occu (Ind ajaya 2021). I es ima ion shows a leas one coin eg a ion ela ionship, hen
VECM is a be e es ima e han he VAR, as i was c ea ed o p edic he LR associa ion and
o adjus o SR a ia ion om LR s abili y. In he VECM, all he a iables a e ea ed as
endogenous, including he le els o he a iables as well as he i s di e ences. The e o e,
es ima ion using VECM was c ea ed o unc ion well wi h nons a iona y da a ha has some
coin eg a ion ela ionship (Ende s 2008); as a esul , i will ou pace he VAR es ima ion.
Be o e we mo e on, some diagnos ic es s mus be checked and conduc ed o ensu e
he legi imacy o he a iables used and he app op ia e model ha could be employed.
Economies 2024,12, 105 7 o 16
In he coming subsec ions, se e al impo an es s and hei ou comes a e s a ed in he
subsequence ables.
3.2.1. Desc ip i e S a is ics and Co ela ion Ma ix
Mo e in o ma ion abou he s a is ics used in his s udy can be ob ained h ough he
analysis o he desc ip i e s a is ics. I summa izes he ea u es o he ime se ies used in his
s udy and gi es insigh abou how a he obse a ion o each da a poin is om he mean.
Re e ing o Table 2, i is epo ed ha he desc ip i e s a is ics’ ou pu comp ises h ee
main ca ego ies: measu ing he sample’s mean, he median, and he s anda d de ia ion
om he mean. I also e eals i he da a a e dis ibu ed no mally o no h ough he
Ja que-Be a es .
Table 2. Desc ip i e s a is ics.
Va iable loilC lGDP lPc ude lS lL
Mean 7.7275 9.4975 3.9880 3.6080 3.4565
Median 7.6914 9.6057 3.9594 3.5912 3.4015
Max 8.2846 10.099 4.8521 4.0148 3.8988
Min 7.0522 8.8776 3.0052 3.0866 3.2108
S.D. 0.4298 0.4761 0.5255 0.2568 0.1901
Ja que-Be a 2.9072 3.8072 1.7036 1.387 6.3488
P obabili y 0.2337 0.1490 0.4266 0.5103 0.2700
Obs. 31 31 31 31 31
As can be seen, he s anda d de ia ion o all he a iables unde in es iga ion anges
om 0.1901 o 0.5255. The esul s o he Ja que-Be a diagnos ic es ailed o ejec he
hypo hesis ha he a iables a e no mally dis ibu ed (p obabili y is g ea e han 0.05).
Ano he impo an es ha is used o check he pai co ela ion be ween he a iables
is he co ela ion es (co ela ion ma ix), ep esen ed in Table 3below. Acco ding o he
da a, he highes co ela ion coe icien is obse ed be ween ene gy consump ion and he
GDP, and a s ong and posi i e co ela ion can be p edic ed be ween sa ings and c ude
oil p ices.
Table 3. Co ela ion Ma ix.
Va iable loilC lGDP lPc ude lS lL
loilC 1.0000
lGDP 0.9589 1.0000
lPc ude 0.7275 0.8432 1.0000
lS 0.4508 0.5097 0.8022 1.0000
lL −0.7517 −0.6497 −0.6267 −0.7053 1.0000
3.2.2. Uni Roo Tes s
The uni oo es is e y impo an , and we canno p oceed wi h he s udy wi hou
p o iding enough e idence ha he se ies is app op ia e o he s udy. The es is designed
o es i he se ies used in he model a e s a iona y in le el (in eg a ed o o de 0;
I(0)
), o
whe he hey a e s a iona y in he i s di e ence;
I(1)
, bu he se ies mus no be s a iona y
in he second di e ence
I(2)
. The ADF es (Dickey and Fulle 1979) and he PP es (Phillips
and Pe on 1988) a e used o es s a iona i y. The esul s o he uni oo es a e only
epo ed o he i s di e ence o he a iables, as he uni oo es o all he se ies in
Economies 2024,12, 105 8 o 16
le el was ound no o be s a iona y and is sugges ed o be in eg a ed o o de one
I(1)
, see
Table 4.
Table 4. Uni oo es o he a iables (in i s -di e ence).
Va iable ADF Tes ( -Tes ) p-Value
Phillips-Pe on Tes
p-Value
loilC −4.6779 *** 0.0008 −4.7186 *** 0.0007
lGDP −5.0423 *** 0.0003 −5.0201 *** 0.0003
lPc ude −4.8148 *** 0.0006 −4.7380 *** 0.0007
lS −5.4401 *** 0.0001 −5.5340 *** 0.0001
lL −4.2273 *** 0.0026 −4.4171 *** 0.0016
No e: *** deno e 1%, 5%, and 10% signi ican le els. The in e cep and end a e included in he es ima ion.
3.2.3. Lag Leng h Selec ion C i e ion
The ou comes o he h ee lag-leng h selec ion c i e ia a e epo ed in Table 5: he
Akaike (AIC), Schwa z (SIC), and Hannan Quinn es s (HQ). As can be seen, all h ee
selec ed c i e ia indica ed a one-lag leng h o he use o he analysis (VECM).
Table 5. Lag Leng h Selec ion Tes .
Lag Leng h
Tes
Akaik In o ma ion
C i e ion
Schwa z In o ma ion
C i e ion
Hannan-Quinn In o ma ion
C i e ion
0−4.9429 −4.7072 −4.8691
1−13.7286 * −12.3142 * −13.2856 *
No e: * deno e 1% signi ican le el.
3.2.4. Coin eg a ion Tes and Long-Run (LR) S abili y
The coin eg a ion es is a s a is ical me hod ha e e y s udy mus conduc as i
examines he possible p esence o a LR co ela ion amongs he non-s a iona y a iables
o e he gi en pe iod o he s udy. This es helps in iden i ying he LR pa ame e s o
equilib ium, and i su e helps in examining whe he wo o he se ies a e coin eg a ed o
no and he e o e canno depa om LR s a iona i y. Table 6below epo s he esul s o
he Johansen Coin eg a ion es .
Table 6. Resul s o he Coin eg a ion es .
Hypo hesized No. o
Coin eg a ion Equa ions
T ace Tes
S a is ic C i ical Value
None * 88.6059 *** 69.8189
A mos 1 * 58.2548 *** 47.8651
A mos 2 * 34.7753 ** 29.7971
A mos 3 * 16.0911 ** 15.4947
A mos 4 * 5.9697 ** 3.8415
No e: *** and ** deno e he ejec ion o he null hypo hesis o no coin eg a ion a 1% and 5% signi ican le els,
espec i ely. * deno e 1% signi ican le el.
As can be seen in Table 6, he esul s indica e he p esence o ou coin eg a ion
equa ions among he a iables a a 5% le el o signi icance. This alida es he exis ence o
a LR ela ionship be ween oil consump ion, economic g ow h, c ude oil p ices, sa ings,
and he labo o ce in he sugges ed esea ch model.
We ha e p e iously s a ed ha i he da a shows a LR associa ion amongs he selec ed
indica o s, hen VAR is no he legi ima e model o use. Re e ing o he empi ical ou pu
in Tables 2–6, as he da a a e coin eg a ed o o de one, I(1), and ha a LR associa ion
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