Structural Breaks and Energy Consumption in the Gulf Cooperation Council Countries: Are Random Shocks Transitory or Permanent?

The impact of random shocks on the energy consumption of the Gulf Cooperation Council countries is essentially an empirical question which cannot be determined a priori without properly testing the integration properties of this variable. To this aim, we perform testing the unit root properties of this variable using both traditional unit root tests and the recently developed technique of the Fourier transformation function or simply known as the FADF test developed by Enders and Lee (2012), which not only takes into account for the existence of structural breaks but also that of non‐linearity in the energy consumption series of these countries. The results from the traditional unit root tests fail to reject the null hypothesis of non‐stationarity while that of the Fourier ADF unit root test which is more powerful has strongly rejected the null hypothesis of unit root for all the countries except Bahrain and Qatar. In sum, the results from this test indicate that the energy consumption variables of these countries are characterised by a stationary process and this has important policy implications. This suggests that these random shocks will have only a transitory effect on the energy consumption per capita of these countries.