Causal Examination of Energy Consumption and Economic Indicators in Organization of Petroleum Exporting Countries (OPEC)

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Causal Examination of Energy Consumption and Economic Indicators in Organization of Petroleum Exporting Countries (OPEC)

ABSTRACT: – The aim of this study is to examine the causality between energy consumption and economic indicators in organization of petroleum exporting countries (OPEC). Secondary data sourced from IEA, OPEC and WDI databases for period between 2010 and 2022 was utilized in this study. The ADF unit root test showed that the variables were I(0) and I(1), integrated at level and order 1 respectively. The energy consumption was proxied by Herfindahl-Hirschman Index (HHI), Non-renewable energy (NRE) consumption and renewable energy (RE) consumption. On the other hand, economic indicators were proxied by Real GDP, Gross Domestic Product (GDP) per capita (GDPPC), and real sectors (proxied by manufacturing sector and agriculture sector). The study utilized panel cointegration test and panel causality instruments.  Firstly, the paper found that energy consumption and economic indicators have a long-run relationship. Secondly, there exist a unidirectional causality between renewable energy (RE) consumption and real GDP (RGDP) and there is absence of a bi-directional causality between energy consumption indicator (proxy by HHI) and RGDP in OPEC. Thirdly, the paper found that manufacturing value added (proxy for real sector) granger causes non-renewable energy (NRE) consumption and RE consumption in OPEC, while there is absence of directional causality existing between manufacturing added value and other energy consumption indicators. Fourth, the paper found that RE consumption and NRE consumption granger cause Agriculture Value Added in OPEC. However, there is no causality between agricultural sector value added and other energy consumption indicators in OPEC. In conclusion the paper asserted that there is mix causality between economic indicators and energy consumption in OPEC. Thus, this paper recommended that OPEC should consider energy diversification policy that would not disrupt its productive capacity and its ability to produce competitively. Keywords:- Panel Causality, Panel cointegration, Energy Consumption, Economic Indicators, Real Sectors, and Energy diversification

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