The Relationship between Oil Prices, Oil Imports and Income Level in Turkey: Evidence from Fourier Approximation

Abstract

The study aims at examining possible impacts of the changes in oil prices and income on crude oil import demand in Turkey using monthly data between 1996:1 and 2017:9. To this end, the study uses a recently introduced Fourier Shin cointegration test of Tsong et al. (2016) and Fourier Toda–Yamamoto approach of Nazlioglu et al. (2016). The study also constructs error correction model to estimate the short‐run parameters. Our empirical findings detect that oil imports are more sensitive to changes in income relative to changes in oil price in the long‐run. Furthermore, 81.4 per cent of the disequilibrium of the shocks converges back to the equilibrium level within the next month. Also, the causality test results provide an evidence for conservation hypothesis in Turkey. Thus, energy conservative policies do not have adverse effects on real economic activity. These results include policy implications for future prospects.