The economic impact of phasing out energy consumption subsidies in GCC countries

• Published in: Journal of economics and business 2016-09, Vol.87, p.35-49
• Main Authors: Al Iriani, Mahmoud A., Trabelsi, Mohamed
• Format: Article
• Language: English
• Subjects: Causality; Economic impact; Energy; Energy consumption; Energy policy; GCC; GDP; Gross Domestic Product; Hypotheses; Studies; Subsidies
• ISSN: 0148-6195; 1879-1735
• DOI: 10.1016/j.jeconbus.2016.04.004

•We analyze potential effects of removing energy subsidies on GCC economies.•First, we uncover GDP-energy consumption causality direction.•We found causality between energy consumption and GDP differs among GCC countries.•Removal of energy subsidies has different impacts on individual GCC economies.•Reforming energy subsidies should take into account GCC country differences. This paper investigates the impact of phasing out energy consumption subsidies on the Gulf Cooperation Council (GCC) economies using causality analysis between GDP and energy consumption. The included empirical tests reveal strong support to the feedback hypothesis between the two variables for Qatar and Saudi Arabia, beyond the sample period. The same tests support the conservation hypothesis for Bahrain and Kuwait within and beyond the sample period, respectively. Furthermore, the growth hypothesis is supported for Oman beyond the sample period. Finally, the analysis of GDP-Energy causality relationship in the UAE supports the neutrality hypothesis. These results suggest that appropriate energy policies geared at phasing out subsidies, hence inducing a more efficient use of energy in this region, should be studied carefully and implemented with caution as the impacts of these policies are expected to differ among individual countries in the region.