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.
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