Revisiting Energy Consumption-economic Growth Hypothesis: Do Slope Heterogeneity and Cross-sectional Dependence Matter?
In this paper, the long-term nexus between energy consumption and economic growth is investigated using a panel data of 80 countries from World Bank data base for the period 1970 to 2017. In order to check for the issues of endogeneity, slope heterogeneity, and cross-sectional dependence present in errors of panel data, the study applied cross-sectional augmented autoregressive distributed lag (CS-ARDL) and cross-sectional augmented distributed lag (CS-DL) models to examine the long-term impact of energy consumption on economic growth. The empirical results revealed that energy consumption has a positive and significant long-run effect on economic growth and that cross-sectional dependence, slope endogeneity and heterogeneity are issues that should be on the watch when dealing with panel data of developing and developed countriesâ€™ analysis. Furthermore, the outcomes indicated that the impact of energy consumption on economic growth is stronger in less developed countries than in advanced economies. Technological progressions that give rise to the advancement of clean and efficient energy and substitution of low-quality fuels with high quality fuels are some of the possible channels that weaken the link between energy consumption and economic growth in advanced economies. Importantly, from a policy perspective, based on the study findings, energy conservation policies aimed at promoting environmental quality may worsen economic growth in developing countries, thereby adversely affecting their long-run economic growths.
Keywords:Energy Consumption, Economic Growth, Developing and Developed Countries, Panel Data
Acheampong, A.O., 2018. Economic Growth, CO2 Emissions and Energy Consumption: What Causes what and where? Energy Economics, 74: 677â€“692.
Ajmi, A.N. & Inglesi-Lotz, R. (2020). Biomass energy consumption and economic growth nexus in OECD countries: A panel analysis. Renewable Energy, 162, 1649-1654.
Alam, Md. S., Paramati, S.R., 2015. Do oil consumption and economic growth intensify environmental degradation? Evidence from developing economies. Applied Economics, 47(48), 5186-5203.
Alper, A., Oguz, O., 2016. The role of renewable energy consumption in economic growth: Evidence from asymmetric causality. Renewable and Sustainable Energy Reviews, 60: 953-959.
Apergis, N. Payne, J.E., 2009. Energy consumption and economic growth in Central America: evidence from a panel cointegration and error correction model. Energy Economics, 31(2): 211â€“216.
Apergis, N., Payne, J.E., 2010 Renewable energy consumption and growth in Eurasia. Energy Econ., 32 (6), 1392â€“1397.
Apostolakis, B.E., 1990. Energy capital substitutability/complementarity: The dichotomy. Energy Economics, 12(1): 48â€“58.
Arora, V., Shuping, S., 2016. Energy consumption and economic growth in the United States. Applied Economics, 48(39): 3763â€“3773.
Belke, A., Frauke, D., Christian, D., 2011. Energy consumption and economic growth: New insights into the relationship. Energy Economics 2011; 33 (5): 782â€“789.
Berndt, E., Charles, K., Jong-Kun, L., 1993. Measuring the energy efficiency and productivity impacts of embodied technical change. The Energy Journal 14 (1): 33â€“55.
Berndt, E.R., 1990. Energy use, technical progress and productivity growth: a survey of economic issues. Journal of Productivity Analysis, 2(1): 67â€“83.
Chen, C., Pinar, M., Stengos, T. (2020). Renewable energy consumption and economic growth nexus: Evidence from a threshold model. Energy Policy, 139, 111295.
Chudik, A., Kamiar, M., Pesaran, H.M., Mehdi, R., 2017 Is there a debt-threshold effect on output growth? Review of Economics and Statistics 99(1): 135â€“150.
Chudik, A., Pesaran, M.H., 2015. Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors. Journal of Econometrics 2015; 188(2): 393â€“420.
Dumitrescu, E.I., Hurlin, C., 2012. Testing for Granger non-causality in heterogeneous panels. Econ. Modell. 29 (4), 1450â€“1460.
Durlauf, S.N., Andros, K., Artur, M., 2001. The local Solow growth model.â€ European Economic Review, 45(4-6): 928â€“940.
Eberhardt, M., Teal, F., 2011. Econometrics for grumblers: a new look at the literature on cross-country growth empirics. Journal of Economic Surveys, 25(1): 109â€“155.
Frondel, M., Christoph, M.S., 2002. The capital-energy controversy: an artifact of cost shares? The Energy Journal, 23(3), 53â€“79.
Ha, N.M. &Ngoc, B.H. (2020). Revisiting the relationship between energy consumption and economic growth nexus in Vietnam: new evidence by asymmetric ARDL cointegration. Applied Economic Letters, 1-7.
Kalimeris, P., Clive, R., Kostas, B., 2014. A meta-analysis investigation of the direction of the energy-GDP causal relationship: implications for the growth-de-growth dialogue. Journal of Cleaner Production, 67: 1â€“13.
Koengkan, M., Fuinhas, J.A., Rosa, S.B. (2020). The energy-economic growth nexus in Latin American and the Caribbean countries: a new approach with globalization index. Revisita Valore, 5, 5019.
Lee, C., Chun-Ping, C., 2008. Energy consumption and economic growth in Asian economies: a more comprehensive analysis using panel data. Resource and energy Economics, 30(1): 50â€“65.
Lee, C., 2006. The causality relationship between energy consumption and GDP in G-11 countries revisited. Energy policy, 34(9): 1086â€“1093.
Menegaki, A.N., 2011. Growth and renewable energy in Europe: a random effect model with evidence for neutrality hypothesis. Energy Econ., 33 (2), 257â€“263.
Mezghani, I., Hedi, B.H., 2017. Energy consumption and economic growth: An empirical study of the electricity consumption in Saudi Arabia. Renewable and Sustainable Energy Reviews, 75, 145â€“156.
Mohammadi, H., Modhurima, D.A., 2015. Long-run relation and short-run dynamics in energy consumption output relationship: International evidence from country panels with different growth rates. Energy Economics 2015; 52: 118â€“126.
Mohammadi, H., Shahrokh, P., 2014. Energy consumption and output: Evidence from a panel of 14 oil-exporting countries. Energy Economics, 41: 41â€“46.
Mundlak, Y., Butzer, R., Donald, F.L., 2012. Heterogeneous technology and panel data: The case of the agricultural production function. Journal of Development Economics, 99(1): 139â€“149.
Narayan, P.K., Smyth, R., 2008. Energy consumption and real GDP in G7 countries: new evidence from panel cointegration with structural breaks. Energy Economics, 30(5): 2331â€“2341.
Newell, R.G., Adam, B.J., Robert, N.S., 1999. The induced innovation hypothesis and energy-saving technological change. The Quarterly Journal of Economics, 114(3): 941â€“975.
Nguyen, D.K., SÃ©vi, B SjÃ¶, B., Uddin, G.S., 2017. The role of trade openness and investment in examining the energy-growth-pollution nexus: empirical evidence for China and India. Applied Economics, 49(40): 4083â€“4098.
Niu, S., Yongxia, D., Yunzhu, N., Yixin, L., 2011. Guanghua L. Economic growth, energy conservation and emissions reduction: A comparative analysis based on panel data for 8 Asian-Pacific countries. Energy policy, 39(4): 2121â€“2131.
Osman, M., Geoffrey, G., Ariful, H., 2016. Electricity consumption and economic growth in the GCC countries: Panel data analysis. Energy Policy, 98: 318â€“327.
Ozturk, I., 2010. A literature survey on energy growth nexus. Energy Policy, 38(1): 340-349.
Rahman, M.M, Valayutham, E. (2020). Renewable and non-renewable energy consumption-economic growth nesxus: new evidence from South Asia. Renewable Energy, 147, 399-408.
Riti, J.S., Song, D. Shu, Y., Kamah, M., (2017b). Decoupling CO2 emission and economic growth in China: is there consistency in estimation results in analyzing environmental Kuznets curve? J Clean Prod, 166,1448â€“1461.
Riti, J.S., Shu, Y., 2016. Renewable energy, energy efficiency, and ecofriendly environment (R-E5) in Nigeria. Energy Sustain Soc, 6(1), 1â€“16
Riti, J.S., Song, D., Shu, Y., Kamah, M., Atabani, A.A., 2018. Does renewable energy ensure environmental quality in favour of growth? Empirical evidence from China renewableâ€™s development. Quality and Quantity, 52(2), 2007-2030.
Riti, J.S., Shu, Y., Song, D., Kamah, M., 2017a. The contribution of energy use and financial development by source in climate change mitigation process: a global empirical perspective. J Clean Prod, 148, 882â€“894
RodrÂ´Ä±guez, C., Carlos, V., Ventosa-Santaul`aria, D., 2017. Energy-growth long-term relationship under structural breaks. Evidence from Canada, 17 Latin American economies and the USA. Energy Economics, 61, 121â€“134.
Salamaliki, P.K., Ioannis, A.V., 2013. Energy consumption and real GDP in G-7: Multi-horizon causality testing in the presence of capital stock. Energy Economics, 39: 108â€“121.
Shahbaz, M., Muhammad, Z., Syed, J., Hussain, S., Mantu, K.M., 2018. The energy consumption and economic growth nexus in top ten energy-consuming countries: Fresh evidence from using the quantile-on-quantile approach. Energy Economics, 71: 282â€“301.
Shahbaz, M., Thi Hong, V.H., Mantu, K.M., David, R., 2017. Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis. Energy Economics 2017; 63: 199â€“212.
Shi, X., Liu, H., Riti, J.S., 2019. The role of energy mix and financial development in greenhouse gas emissionsâ€™ reduction: Evidence from ten leading emitting countries. Economia Politica, 36(3), 695â€“729.
Sierra, A., Scavia, J., 2018. Dynamic co-movements between energy consumption and economic growth. A panel data and wavelet perspective, Energy Economics 72: 640â€“649.
Smyth, R., Narayan, P.K., 2015. Applied econometrics and implications for energy economics research. Energy Economics ,50: 351-358.
Soytas, U., Ramazan, S., 2006. Energy consumption and income in G-7 countries. Journal of Policy Modeling, 28(7): 739â€“750.
Stern, D.I., 2000. A multivariate cointegration analysis of the role of energy in the US macro-economy. Energy Economics, 22(2): 267â€“283.
Stern, D.I., 2011. The role of energy in economic growth. Annals of the New York Academy of Sciences, 1219(1): 26â€“51.
Wang, T., Riti, J.S., Shu, Y., 2018. Decoupling greenhouse gas emissions, urbanization, energy and income: Analysis from the economy of China. Environmental Science and Pollution Research, 25(20): 19845â€“19858-x.
World Bank Database., 2016. World Development Indicators. (https://data.worldbank.org/indicator (retrieved February 29, 2019)
Yildirim, E., Deniz, S. Alper, A., 2014. Energy consumption and economic growth in the next 11 countries: The bootstrapped autoregressive metric causality approach. Energy Economics, 44: 14â€“21.
How to Cite
Copyright (c) 2021 Miriam Kamah, Joshua Sunday Riti
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retains full copyright of their article and grants non-exclusive publishing right to Advanced Journal of Social Science and its publisher AIJR Publisher. Author(s) can archive pre-print, post-print, and published version/PDF to any open access, institutional repository, social media, or personal website provided that Published source must be acknowledged with citation and link to publisher version.
Click here for more information on Copyright policy
Click here for more information on Licensing policy