Does Portuguese economy support crude oil conservation hypothesis?

This paper examines cointegration relationships and Granger causality nexus in a trivariate framework among oil consumption, economic growth and international oil price in Portugal. For this purpose, we employ two Granger causality approaches: the Johansen cointegration test and vector error correction model (VECM) and the Toda–Yamamoto approaches. Cointegration test proves the existence of a long run equilibrium relationship among these variables and VECM and Toda–Yamamoto Granger causality tests indicate that there is bidirectional causality between crude oil consumption and economic growth (feed back hypothesis). Therefore, the Portuguese economy does not support crude oil conservation hypothesis. Consequently, policymakers should consider that implementing oil conservation and environmental policies may negatively impact on the Portuguese economic growth. - Highlights: ► We examine Granger causality among oil consumption, GDP and oil price in Portugal. ► VECM and Toda–Yamamoto tests found bidirectional causality among oil and GDP. ► Portuguese economy does not support the crude oil conservation hypothesis.