Oil Price and the Renewable Energy Consumption in Bangladesh: An Empirical Analysis

Farhan Khan, Maayesha Tasneem Chowdhury and Sakib B. Amin

Oil price is known for its volatility and due to the sudden fluctuation of oil price, developing countries are affected more than the developed countries. To the best of our knowledge, no studies have been conducted to investigate the relationship between oil price and renewable energy consumption in Bangladesh and so the aim of this paper is to analyze how oil price impacts renewable energy consumption with the help of time series data (1980-2015). Johansens conintegration test reveals that our variables are cointegrated and Granger causality test results show a unidirectional causality is running from renewable energy consumption to oil price in the long run. Through Vector Error Correction Model (VECM) we found no causality in the short run. CUSUM and CUSUMSQ test was employed to check the stability of the model and results show that the model is stable. Dynamic Ordinary Least Square (DOLS) approach being used for long run estimation and we found that the coefficient of oil price is positive and inelastic as well. Thus proper policies should be taken to develop the renewable energy sector to reduce the effects of oil shocks in Bangladesh.