Short- and long-run effects between oil consumption and economic growth in China

Abstract

This paper examines both the equilibrium relationship and the predictability between oil consumption and economic growth in China. Time series variables are employed in empirical tests. Cointegration tests suggest that these two variables tend to move together in the long run. In addition, Granger causality tests indicate that oil consumption could be a useful factor that forecasts changes in the economy in the short run as well as in the long run. The oil consumption is found to have great effects on the economy. This is because the enormous use of oil in sectors like the industry may have directly pushed the economy. However, this finding would probably stimulate faster growth in oil consumption and so should be concerned with care. Conversely, economic growth could be used as a predictive factor forecasting oil consumption only in the long run. Economic growth appears to have small effects on oil use; this could be attributed largely to China's energy consumption structure. Coal constitutes most of the energy consumption and thus the considerable demand for energy resulting from rapid economic growth could be mostly explained by the mass use of coal. © 2005 Elsevier Ltd. All rights reserved.