An ARDL Approach to the Oil and Growth Nexus: Portuguese Evidence

Abstract

In the literature, the causal relationship between oil consumption and economic growth has been poorly studied. Portugal is a medium-sized economy, which has experienced several episodes that make it of particular interest in the study of periods of economic expansion and stagnation. Portugal is constrained by external energy dependency and, due to international commitments, it is also faced with energy preservation policies that may have deep implications to its economic growth. This article examines the causal nexus between economic growth and oil consumption in Portugal, using the ARDL bounds test approach with annual time series data from 1965 to 2009. Results suggest that oil consumption causes growth in the long run and short run, and growth causes oil consumption in the long run and short run. Therefore, an energy policy that reduces oil consumption puts a slight constraint on gross domestic product growth, but growth strongly contributes to heightening Portugal's oil dependence.

Keywords:

• ARDL bounds test
• economic growth
• long and short run elasticities
• oil consumption

Notes

***, **, *: Significant at 1%, 5%, and 10% level, respectively.

Notes: χ² statistic. ***Significant at 1% level.

Note: ***Significant at 1% level.