Oil consumption and economic efficiency: A comparative analysis of advanced, developing and emerging economies

a r t i c l e i n f o Keywords: Economic efficiency Oil consumption DEA window analysis Dynamic panel data models This paper investigates the economic efficiency–oil consumption relationship in 42 countries during the period 1986–2006. In a first stage by using DEA window analysis countries' economic efficiencies are obtained. In a second stage an econometric analysis based on robust GMM estimators reveals an inverted 'U'-shape relationship between oil consumption and economic efficiency. In order to capture heterogeneities among countries' development stages the analysis has been separated into two groups (advanced economies and developing/emerging economies). The results show that advanced economies have much higher turning points compared to emerging and developing economies. It appears that oil consumption increases countries' economic efficiency. In addition the consumption patterns of oil products and its derivatives have changed through years and among countries. The different turning points from the econometric analysis indicate the dependence of oil consumption in advanced economies (higher turning points) is driven mainly by household purchasing activities and their standards of living (transport, housing and water, food, etc.). Finally, it appears that oil consumption is the main driver behind the progress of industrialization and urbanization regardless of the country's development stage. The impact of energy on a countries' economic growth has been the center of research agenda for several years. Kraft and Kraft (1978) were among the first who investigated the relationship between energy consumption and economic growth for the USA. Since then many studies have used Granger causality tests in order to establish the link between energy and income, and energy and economic However, the results reported vary according to the country and the time period considered. Furthermore, Huang et al. (2008) applied a dynamic panel approach examining the energy consumption-GDP relationship for 82 countries from 1972 to 2002. They divided the data into four categories according to countries' income levels and their results showed absence of evidence that energy consumption leads economic growth in any of the four income groups. Similarly, Ozturk et al. (2010) using a sample of 51 countries, divided into sub-samples according to income groups and for the period 1971 to 2005, found that there is no strong relationship between energy consumption and economic growth indicating the need for further research. Jorgenson (1984) emphasized the fact that much research remains to be done until we are able to establish the relationship between energy utilization …