Oil Demand, Oil Prices, Economic Growth and the Resource Curse: An Empirical Analysis.

It is generally accepted that oil has been vitally important to the global economy and the world has experienced growth in oil consumption for the majority of years since the early 1900s. In all probability, this trend will continue with the majority of the growth coming from the emerging economies - hence the global importance of oil is likely to continue. Against this backdrop, this thesis aims to analyse empirically the relationship between oil and the level of growth in economic output (or income) from a number of different angles. The thesis begins by investigating oil demand; in particular, the relationship between oil consumption and income (as well as prices) across six regions of the world by applying the Structural Time Series Modelling (STSM) technique. Furthermore, the estimates are used to produce different forecast scenarios of oil demand for each of the regions up to 2030. According to the reference case assumption, global oil demand is projected to rise from about 87 mb/d in 2010 to 110.27 mb/d in 2030 consisting of strong growth in the Middle East, Africa and Asia Pacific, compared to a marginal growth in Europe and Eurasia while North American oil consumption is projected to decline. The thesis also investigates the co-movements and causality relationship between oil prices and GDP of non-OECD countries, grouped depending on whether a country is a net oil exporter or net oil importer using both time-series and panel data models. The results suggest that there is a long-run cointegrating relationship between oil prices and GDP and that oil prices ‘Granger-causes’ GDP for the group of net oil exporting countries but fails to ‘Granger-cause’ GDP for the net oil importing countries. This implies that oil prices have a strong influence on economic output of net oil exporting countries with little or no influence on the economic output of net oil importing countries. Finally, the research considers the resource curse hypothesis debate by employing recently developed heterogeneous panel analysis to investigate the long-term effect of oil abundance on economic growth. It is concluded that oil as a resource, cannot be attributed to the poor economic performance of most oil rich countries, but perhaps might have come about by weak institutional base and oil price volatility which usually has an adverse effect on long-term economic performance