Scrutinizing the Causality Relationships Between Prices, Production and Consumption of Fossil Fuels: a Panel Data Approach

Abstract

This study reveals the causality relationships between overall production and consumption of each fossil fuel type (oil, natural gas and coal) for the period between 1985 and 2013 in 25 selected countries. The sample countries are the ten most important producers and consumers of related fossil fuel types during the sample period, subject to the available data. Hence, the main aim of this study is to analyze whether a shift in fossil fuel prices has an impact on the production and consumption of each fossil fuel type, or vice versa. Moreover, this study aims to determine whether examining general trends is sufficient to identify the specific causality conditions affecting individual countries. The assessed recent panel Granger causality methodology by Dumitrescu and Hurlin [9] allows us to reach robust and concrete findings. The majority of overall panel findings designate bilateral causality; on the other hand, heterogeneous (country specific) causality results generally represent a unilateral relationship. Hence, the analysis of the panel statistics shows a generally uniform result regarding existing trends; however, this study reveals that the particular condition of individual countries has a key influence on the direction of existing causality. (C) 2016 Elsevier Ltd. All rights reserved.