The relationship among oil prices, oil consumption and financial development level: The empirical analysis in OECD countries

Oil is an energy source having no alternative and always demanded. Since this is the case, how oil consumer countries are affected from price changes and their financial situations are one of the questions waiting for answer. In this study, the relationship among oil prices, oil consumption and financial development, has been explored. In the study, OECD countries have been analysed and yearly datas between 1980-2015 has been used. The aim of the study is to designate the effect of oil prices and oil consumption over financial development. In the study, 17 OECD countries have been analysed and the method of panel data analysis has been used. All steps of panel data analysis have been applied and since no cointegration relationship was detected, the analysis was sustained by using panel VAR analysis. Other sub-analysis belonging to panel VAR analysis like Granger causality analysis, variance decompisition and impulse-response functions have been used to complete the analysis. At the end of the analysis, one way causality relationships have been detected from oil consumption to financial development and from oil prices to oil consumption. The existance of this causality relationship has been approved by performed variance decompisition and it has been detected that as the number of delay of the percentage of revealing of financial development of oil prices increases, this causality relationship shows an increase by reaching %34 level. By the same manner, it has been found that the percentage of revealing of oil consumption of oil prices having causality relationship increases up to %43. As a result of these findings, as there is a meaningful relationship; it has been shown by impulse-response functions that the upside in oil consumption increases financial development level and the upside in oil prices decreases oil consumption. All these findings supported the studies in the literature.