Moderation Role of Energy Prices on Financial Instability, Trade Openness and Economic Growth in Non-OPEC Countries

Abstract

This paper examined the interaction effect of energy price on the relationship between financial instability, trade openness and non-OPEC countries economic growth. The paper used panel time series data from 1970-2018. In addition, the paper applied second generation approach. The results of the cointegration test revealed a long run relationship among the variables. Moreover, the results showed that financial instability, energy price, and 2014 energy crisis have negative effect on economic growth, while, trade openness has positive effect on the economic growth. Additionally, the results confirmed that the interaction term of energy prices and financial instability is negatively affecting the economic growth, but interaction term of energy prices and trade openness is positively affecting the economic growth of non-OPEC countries (emerging ASEAN economies). However, the results of causality test indicated one-way causal relationship from financial instability to economic growth, energy price to economic growth, and trade openness to economic growth. The empirical findings also suggested that interventions from the policymakers of the emerging ASEAN country could provide rigidity or policies on financial repression, instead of a more flexible financial system, designed to expand growth and stability in focused macroeconomic policies through financial rules. In order to control energy use and stabilize prices in ASEAN countries, there should be a comprehensive energy policy, which may have a negative impact on their economies, as most of the emerging ASEAN countries have not relied on oil revenues.