Oil-macroeconomy relationship over time: Does oil still matter?

Oil prices have played a pivotal role in shaping the macroeconomic performance of countries worldwide over the past century. While the oil-macroeconomy relationship remained stable for much of the twentieth century, it has evolved into a dynamic and more complex interaction in both oil-importing and oil-exporting countries since the first oil price shock in the 1970s. Myriad theoretical and empirical models have been developed to explain the impacts of oil price shocks on the economic performance of these countries, using various methods across different periods. However, given the technological advances in alternative and non-conventional energy sources, the increasing efficiency in energy use, and growing geopolitical and environmental concerns, the pertinent question arises: Does oil still hold the same significance? In this study, we employ a nonparametric panel data model with time-varying trends and coefficients to investigate the time-varying effects of oil price shocks on the global economy. Additionally, we consider the potential role of international trade in shaping the oil-macroeconomy relationship. Our dataset includes major oil-importing and oil-exporting countries from both developing and developed categories for the period 1970–2019. Our findings suggest that while oil may have lost some of its macroeconomic influence in most developed oil-exporting and oil-importing countries, it continues to hold significant economic relevance for developing countries, whether they are oil exporters or oil importers.