Academic journal article Journal of Economic Cooperation & Development

Trade and Energy Consumption in the OPEC Countries

Academic journal article Journal of Economic Cooperation & Development

Trade and Energy Consumption in the OPEC Countries

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1.Introduction

Energy has been considered as an important production factor for decades; its price and availability play key roles in the economic growth of almost all countries. Economic growth and development are considered the main objectives for all nations and the energy market seems to play a prominent role in determining whether nations grow, stagnate, or contract. The increased price of energy and the move to a more efficient energy consumption strategy can have marked effects on economic growth in many countries. This paper deals with energy consumption and trade volume in OPEC countries, where energy is cheap and plentiful, but where there is significant pressure to increase energy prices to reflect market conditions.

International trade requires a well-functioning transportation network and transportation consumes energy in moving goods by air, rail, road, water and pipeline. Approximately 30% of total global energy demand is derived from the transportation sector (International Energy Agency, US EIA, 2010). The relationship between energy consumption and trade is an attractive topic to study for several reasons. If energy consumption has a significant effect on exports and imports, then any reduction in energy consumption, or any energy conservation polices, could potentially reduce the volume of trade. In such circumstances energy conservation polices could be at odds with trade liberalization polices.

2.Economic growth, trade and energy

Over the past 50 years, many developing economies have experienced rapid increases in trade, income, and energy consumption; experiencing a concomitant improvement in economic well-being. In 2011, world real GDP growth was 2.8%, while world primary energy consumption grew by 2.5% (roughly in line with the 10-year average). Crude oil accounted for 33.1% of world energy consumption in 2011 (British Petroleum Statistical Review of World Energy, 2012).

Energy prices, trade liberalization, and improvements in transportation technology have been crucial factors in increasing world trade. According to a 2010 WTO report the value of total world export of goods and services reached 19 trillion dollars and was growing at 14.5% per year. Trade volume in developed countries and developing countries grew 12.9% and 16.7%, respectively, in 2010. At the same time OPEC members experienced rising economic growth and international trade coupled with rapid energy consumption increases. International trade in OPEC countries was generally influenced by oil exports.

In recent years some OPEC countries have tried to improve their economic conditions by joining the WTO (Saudi Arabia has been a member since 2005; Iran and Iraq have been accepted as observer states). Along with increased economic growth came increased demand for energy in these WTO member countries. Over the 2006- 2030 period, it is predicted that energy demand will grow at an average annual rate of 3.2% for the Middle East, 1.4% for Africa and 2.0% for Latin America (International Energy Agency, 2008).

Since the oil shocks of the 1970s a huge literature has developed looking into the relationship between energy consumption and GDP (Yemane, 2009 and Mehrara, 2007)). In particular, an emphasis has been on whether higher energy prices will lead to lower GDP growth. There is a vast literature looking into the relationship between economic growth and energy consumption in different countries. Chien-Chiang and ChunPing (2008) examined this relationship within a multivariate panel data framework that includes capital stock and labor input for sixteen Asian countries during the 1971-2002 period. The empirical results fully support a positive long-run co-integrated relationship between real GDP and energy consumption. Mehrara (2007) examined the causal relationship between per capita energy consumption and per capita GDP in a panel of eleven selected oil exporting countries. …

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