Is OPEC a Cartel? Evidence from Cointegration and Causality Tests
AbstractThe energy shocks of the 1970's had significant effects on the global economy. Were they engineered by an effective cartel of OPEC members acting to share the market by controlling output and influencing market prices? If OPEC was an effective cartel sharing the market among its members, there would be a long-run relationship between each member's individual production and total OPEC output. One would also expect OPEC's production to significantly affect the market price of oil as the organization is often accused of curbing production in order to raise prices. These implications of cartel behavior are tested via cointegration and causality tests. The likely effects of regime changes are dealt with using techniques developed by Perron (1989). There is evidence of output coordination among some members of the organization, especially in the output rationing era (1982-93). This is also the only period in which the causality from OPEC production to the price of oil is statistically significant. Overall, the evidence suggests that OPEC did act as a cartel in the 1980's in order to maintain prices, while it simply took advantage of market conditions in the 1970's and did not have to restrain output.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 318..
Length: 41 pages
Date of creation: 01 Jan 1996
Date of revision:
Publication status: Published, The Energy Journal, Vol. 17, 2:43-57.
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
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OPEC; oil prices; cointegration; causality tests;
Other versions of this item:
- S. Gurcan Gulen, 1996. "Is OPEC a Cartel? Evidence from Cointegration and Causality Tests," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 43-57.
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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