Abstract
The present study is an attempt to test the relationship between energy consumption and economic growth for developed and develo** counties. For this purpose, panel data on various factors of GDP growth has been taken for 18 develo** and 18 developed countries from 1980–2013. The paper uses the variant of Solow model to provide the economic justification behind the econometric estimation of regression model which includes energy consumption as one of the independent variables affecting GDP growth of a country, among others. The paper also runs a separate regression model for developed and develo** countries to compare the effect of energy consumption on economic growth. To estimate the regression model, study uses various panel data estimation methodologies such as: panel data cointegration, panel causality, panel VECM, panel VAR and panel data ARDL and SURE to find out the short run and long-run relationship between the policy variables. The overall conclusion emerges from the analysis is that per capita energy consumption has a negative impact on growth of per capita GDP in develo** countries but positive impact in case of developed countries. This may be due to the fact that in developed nations, the energy consumption expenditures may be more devoted to technological progress in alternative source of oil like shell gas or in expenditures related to renewable energy intensive technological products. The develo** countries although trying to put efforts in increasing expenditures in alternative energy sources like non renewable, oil consumption still seem to not have many alternatives sources of energy. Therefore, reducing oil expenditures tend to promote growth among develo** countries. The paper tests the direction of causality between energy consumption and GDP for set of developed and develo** countries by working on the following hypotheses
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Neutrality hypothesis, which holds that there is no causality (in either direction) between these two variables.
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Energy conservation hypothesis, which holds that there is evidence of unidirectional causality from GDP growth to energy consumption.
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Growth hypothesis, energy consumption drives GDP growth.
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Feedback hypothesis, which suggests a bidirectional causal relationship between energy consumption and GDP growth. Growth, energy conservation and feedback hypotheses tend to work for developed and develo** countries.
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Notes
The trade openness and human capital are known to be major vehicles for international knowledge and technology spillovers; technology plays a major role in increasing productivity and growth in the industrial sector; whereas, energy consumption expenditure is linked with increase in investments in technological advances in energy resources and more advancement also lead to invent energy efficient resources.
In the study, two different models have been estimated: One with energy consumption per capita (model given in Eq. 6) and other with energy efficiency (model given in Eq. 6b) as a one of the independent variable in place of each other. The study has also included share of FDI in GDP as one of the independent variable which is not present in the Eq. (5) as derived from the economic model. The last four factors in both of the models determine the level of technology in the model.
See Cooper et al. (2007).
The correct concept of economic convergence in panel setting is given by Evans and Karras (1996). According to them one would see panel convergence if each income series (log of \(\hbox {y}_{\mathrm{it}}\) at constant international and common prices) of the group (N) is integrated of order one and any deviations of any individual income series from cross sectional average (sum of \(y_{t}\) divided by N) are stationary. Convergence is said to be absolute if the mean of all the series \(\hbox {y}_{\mathrm{it}}\) (cross sectional average) are equal to zero and relative otherwise. The economies are said to diverge if the deviation series are non stationary.
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The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of the paper.
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Mathur, S.K., Arora, R., Ghoshal, I. et al. Domestic Energy Consumption and Country’s Income Growth: A Quantitative Analysis of Develo** and Developed Countries Using Panel Causality, Panel VECM, Panel Cointegration and SURE. J. Quant. Econ. 14, 87–116 (2016). https://doi.org/10.1007/s40953-015-0021-4
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DOI: https://doi.org/10.1007/s40953-015-0021-4