AbstractSince the middle of the twentieth century, crude oil has emerged as one of the world's leading indicators of economic activity due to its outstanding importance in meeting the world's energy requirements. Today, the importance of crude oil as the main source of energy has declined somewhat due to the emergence of alternative forms of energy (such as wind, water, solar and nuclear energy). But how and to what extent oil prices can affect the economic performance is not clear. Various aspects and features including the impact of oil price changes on business cycles, the asymmetric effect of oil price changes on economic performance (since economic activities respond differently to an increase in oil prices than to a decrease in oil prices), as well as the impact of oil price changes on economic performance, emphasizing the distinction between net exporter and net importers could be addressed. The G7 countries are the world's seven largest industrialized nations with a significant share in industrial production as well as energy consumption, so examining the impact of oil price changes on industrial production in these countries could contribute to the literature. For this reason, G7 time series data were used for oil price variables and industrial production.
In the first chapter, a general introduction is given. In the second chapter the literature is reviewed and discussed in the framework of theoretical and experimental principles.
I examine the effect of rising oil prices on the growth in industrial production during periods of boom and recession plus the impact of oil price changes on business cycles using the Markov Switching econometric approach in the third chapter. First, the findings show that oil price changes do not influence business cycles. One of the reasons for the increase in oil prices during periods of industrial production boom could be the rise in demand for oil. However, rising oil prices during periods of industrial production stagnation could be due to declining oil supply, which could exacerbate the negative effects of rising oil prices on industrial production. Of course, the dependence of the structure of production and export of countries on oil is another effective factor. The countries balance of trade can also be another effective factor in analyzing this relationship. Second, although rising oil prices has a positive impact on the growth in industrial production (with the exception of Italy and the United States), the negative effects of rising oil prices during recession are greater than during boom periods.
Some statistical evidence and empirical studies have shown that while an increase in oil prices leads to a decrease in economic growth, a decline in oil prices does not lead to an increase in economic growth (Mork, 1989; Hamilton, 2003). Therefore, in chapter four, the threshold effect of oil price changes on industrial production growth is investigated using the smooth transition regression approach. The findings show that, first, industrial production growth is very sensitive to changes in oil prices. Second, the impact of oil price changes on industrial production growth around the threshold limit has an asymmetric behavior. Third, although asymmetric behavior was observed for all countries, given the distinct economic structure of each country, a clear result about the asymmetric (positive and negative) effects and the estimated threshold is not generated for all countries.
Given the differences in the economic structure of countries, impact of oil price changes on the economic performance across countries is somewhat different. One of these features, which can play an important role in analyzing the impact of oil price changes on industrial production growth and has been considered in the literature is the oil-exporting or oil-importing feature of an economy. Accordingly, in the fifth chapter, the effect of oil price changes on industrial production growth with the threshold role of net ratio of oil exports to GDP as a transition variable within the framework of panel smooth transmission regression model. The findings show that the degree of dependence of the production structure of countries on oil imports is a determinant factor in the degree of oil prices impact on industrial production growth. Therefore, higher dependency of industrial production to oil imports, corresponds to a larger negative impact of an increase in oil prices on economic performance.
|Date of Award||2021|
|Supervisor||Bill Russell (Supervisor)|