Is OPEC a Cartel? Evidence from Cointegration and Causality Tests

Gurcan Gulen

No 318., Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: The 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.

Keywords: OPEC; oil prices; cointegration; causality tests (search for similar items in EconPapers)
JEL-codes: E30 E65 F42 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1996-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Published, The Energy Journal, Vol. 17, 2:43-57.

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Journal Article: Is OPEC a Cartel? Evidence from Cointegration and Causality Tests (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:318

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