Estimating the impact of the financial development on energy consumption: Evidence from the GCC (Gulf Cooperation Council) countries

• The impact of the financial development on energy use is examined in the GCC (Gulf Cooperation Council).
• The panel data methodology was utilized taking the period 1980–2009.
• The financial development increases energy use in the short and the long run.

This study investigates the impact of the financial development on energy consumption in the GCC (Gulf Cooperation Council) countries. The panel data methodology was utilized taking the period 1980–2009. By using Pedroni cointegration test, it was found that LEC (energy consumption), the LFD (financial development), GDP (LGDP), LUR (urbanization) and LTD (total trade) are cointegrated. Furthermore, the panel dynamic OLS (ordinary least squares) revealed that LFD, LGDP, LUR and LTD have a long run positive effect on LEC. The Granger causality results show a bi-directional positive relationship between LEC and LGDP, LFD and LGDP, LTD and LGDP, LTD and LFD, LTD and LUR and between LTD and LTD. In addition, a one way positive causal relationship was found from LFD to LEC and from LUR to LEC. The study revealed that the financial development is one of the factors that increased energy consumption in the GCC in the short and the long run. From the findings of this study, a number of recommendations were formulated regarding the GCC policy makers to help reducing their energy consumption.