The Relationship between Oil Consumption and Economic Growth in Bangladesh: An Empirical Analysis

Abstract

Today, oil is considered as a dynamic factor that helps to sustain modern economic activities as well as wellbeing of a nation. To the best of our knowledge, no study has been done in the context of Bangladesh regarding the causal relationship between oil consumption and economic growth. Hence, the aim of this paper is to empirically analyze the long-run causal relationship between oil consumption and economic growth in Bangladesh by using annual data ranging from 1980 to 2015. Johansen’s Cointegration test results reveal that all variables are cointegrated and Granger Causality test results show that a unidirectional causality is running from oil consumption to economic growth, which goes hand to hand with the growth hypothesis. Thus, Bangladesh should adopt appropriate energy policy to curb down the constraints regarding oil consumption and oil products distribution in order to continue the stable economic growth and reach Middle-Income status by 2021.