Effects of Oil Prices on Capacity Usage: Panel Data Analysis for G-7 Countries

The fact that energy has become an indispensable part of human life is an important part of economic development and it is accepted by all. The high demand for oil by many countries, especially for social development and industrialization efforts, reveals the strong link between energy and development.As a result of the rapid increase in the dependence on oil, which has an important place among the primary energy sources, the world economy has been hit hard by the oil crises. In this respect, the dependence of the countries that want to continue their economic development and achieve their industrialization targets on energy consumption has played an important role. Increasing energy costs have hampered the economic growthof countries. Economic stagnations following the oil shocks in the 1970s led to studies on the relationship between oil prices and many macroeconomic variables such as economic growth, inflation and employment.In this respect, this study analyses the effects of imported crude oil prices, economic growth, unemployment and capital accumulation usage on capacity utilization using panel data analysis considering horizontal cross-sectional dependence by using annual data of G-7 countries (Canada, France, Germany, Italy, Japan, UK and USA) for 1999-2017 period. Stability of the series was examined by Bootstrap test which is one of the second-generation unit root tests which take horizontal dependence into account. The existence of cointegration relationship was examined by Westerlung-Edgerton LM bootstrap test and AMG 2009 (Augmented Mean Group estimator) method was used to estimate long-term coefficients. The results of the study show that while economic growth has positive effects on capacity utilization, imported crude oil prices, unemployment and capital use have negative and statistically significant effects.