The Relationship among Oil Prices, Oil Consumption and Financial Development

Oil is an energy source having no alternative and always demanded. Since this is the case, how oil consumer countries are affected by price changes and their financial situations are one of the questions waiting for an answer. In this study, the relationship between oil prices, oil consumption and financial development, has been explored. In the study, OECD countries have been analyzed and yearly data 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 analyzed 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 decomposition 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. 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.