Energy Demand Interplay with Real GDP and Oil Prices

Abstract

Crude oil has become a prominent indicator for economic activities worldwide, due to its outstanding importance in the supply of the world's energy demands. Many economists believe that there is a strong relationship between the growth rate of a country and oil- prices. As such we attempt to investigate the determinants of aggregate energy demand in two economies based on both real energy price and real gross domestic product (RGDP). The data used in this study covers that of Organization for Economic Co-operation and Development (OECD) and Organization of the Petroleum Exporting Countries (OPEC) member countries. Intense findings of this empirical study are that in long-run oil-prices and Real GDP have significant impacts on energy demand for the OECD's. While for the OPEC region a moderate impact was found. The short-run result for both OPEC and OECD corresponds to what Keynesian vein assumes "prices are rigid in a short-run".