This study attemps to look into the causal relationship between oil consumption
and economic growth in Brazil where oil consumption and real
gross domestic product (GDP) have been rapidly increased in recent years.
To this end, the study employs annual data covering the period 1965?2010.
Tests for unit roots, co-integration, and Granger-causality based on the
error-correction models are presented. The overall results support the
existence of bi-directional causality between oil consumption and economic
growth in Brazil. This means that an increase in oil consumption directly
affects economic growth. Thus, in order not to make an adverse effect on
economic growth, Brazil should endeavor to overcome the constraints on
oil consumption. Moreover, it appears that economic growth induces oil
consumption.
