The dynamic relationships between oil products consumption and economic growth in Saudi Arabia: Using ARDL cointegration and Toda-Yamamoto Granger causality analysis

Abstract

The purpose of this study is to investigate the short-run and long-run relationship between liquefied petroleum gas Consumption (LPGC), natural gas consumption (NGC), other refined products consumption (ORPC), carbon dioxide emissions (CO2), and gross domestic product (GDP) in Saudi Arabia, from 1970 to 2021. To study the link between energy consumption and economic growth and its role in this relationship, we use an autoregressive distributed lag (ARDL) bounds-testing technique of cointegration. The research findings revealed the development of a cointegrating association among all the variables. The anticipated results provide more evidence that a long-run link exists between the drivers of economic development and its regressors. The empirical estimation suggests an LPGC effect that is both beneficial and statistically significant on economic growth. A positive correlation exists between energy consumption and GDP growth. Using the Toda-Yamamoto Granger Causality approach, the causality test reveals a unidirectional causal relationship between the consumption of liquified petroleum and GDP, and between the consumption of natural gas and other refined products. In addition, there is bidirectional causality between GDP and other refined products. Consumption of natural gas and carbon dioxide emissions both have a neutral causal effect on economic growth. In the short run, NGC, ORPC, and CO2 have a positive effect on GDP. The KSA energy policy, actively engaged in slowing CO2 while preserving energy consumption, will significantly benefit from the conclusions of this research. Thus, policymakers should consider how to make LPGC, NGC, and ORPC more prudent and effective, particularly in the energy sector. The government of Saudi Arabia also needs to centralize the renewable energy sector.

Keywords

• O44
• F18