Islam, Faridul and Shahbaz, Muhammad and Alam, Mahmudul (2011): Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis.
Download (166kB) | Preview
Despite a bourgeoning literature on the existence of a long-run relationship between energy consumption and economic growth, the findings have failed to establish clearly the direction of causation. A growing economy needs more energy, which is exacerbated by growing population. Evidence suggests that financial development can reduce overall energy consumption by achieving energy efficiency. Economic growth and energy consumption in Malaysia have been rising in tandem over the past several years. The three public policy objectives of Malaysia are: economic progress, population growth and financial development. It is of interest to the policymakers to understand the dynamic interrelation among the stated objectives. The paper implements Auto Regressive Distributed Lag (ARDL) approach to cointegration to examine the existence of a long-run relationship among the series: energy consumption, population, aggregate production, and financial development for Malaysia; and tests for Granger causality within the Vector Error Correction Model (VECM). The results suggest that energy consumption is influenced by economic growth and financial development, both in the short and the long-run, but the population-energy relation holds only in the long run. The findings have important policy implications for balancing economic growth vis-à-vis energy consumption for Malaysia, as well as other emerging nations.
|Item Type:||MPRA Paper|
|Original Title:||Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis|
|English Title:||Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis|
|Keywords:||Financial development; Energy consumption; ARDL; Economic growth|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q20 - General
O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O52 - Europe
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy
|Depositing User:||aviral tiwari|
|Date Deposited:||25. Jan 2011 20:47|
|Last Modified:||30. Dec 2015 09:29|
Al-Iriani, M, (2006) ‘Energy–GDP relationship revisited: an example from GCC countries using panel causality’, Energy Policy, 34, 3342–3350.
Altinay. G and Karagol. E (2005) ‘Electricity consumption and economic growth: evidence from Turkey’, Energy Economics, 27, 849–856.
Ang, J. B., 2008. Economic development, pollutant emissions and energy consumption in Malaysia, Journal of Policy Modeling, 30, 271–278.
Aqeel, A., Butt, M. S., 2001. The relationship between energy consumption and economic growth in Pakistan, Asia-Pacific Development Journal, 8, 101-110.
Asafu-Adjaye, J., 2000. The relationship between energy consumption, energy prices and economic growth: time series evidence from Asian developing countries, Energy Economics, 22, 615– 625.
Bannerjee, A., J. Dolado, R, Mestre., 1998. Error-correction mechanism tests for cointegration in single equation framework, Journal of Time Series Analysis, 19, 267-283.
Batliwala, S., Reddy. A. K., 1993. Energy Consumption and Population, International Energy Initiative, 25/5 Borebank Road, Benson Town, Bangalore, India. pp: 1-10.
Belloumi, M., 2009. Energy consumption and GDP in Tunisia: Cointegration and causality analysis, Energy Policy, 37, 2745-2753.
Bowden, N., Payne, J. E. 2009. The causal relationship between US energy consumption and real output: A disaggregated analysis, Journal of Policy Modeling, 31, 180-188.
Fong, W.K., Matsumoto, H., Lun, Y. F., Kimura, R., 2007. Influences of Indirect Lifestyle Aspects and Climate on Household Energy Consumption, Journal of Asian Architecture and Building Engineering, 6, 395-402.
Ghosh, Sajal, 2002. Electricity consumption and economic growth in Taiwan, Energy Policy, 30, 125–29.
Ghosh Sajal, 2010. Examining carbon emissions economic growth nexus for India: A multivariate cointegration approach, Energy Policy Energy Policy 38:3008–14.
Halicioglu, F., 2007. Residential electricity demand dynamics in Turkey, Energy Economics, 29, 199–210.
Karanfil, F., 2009. How many times again will we examine the energy–income nexus using a limited range of traditional econometric tools? Energy Policy, 37, 1191–119.
King, R. G, Levine. R., 1993. Finance and growth: Schumpeter might be right, Quarterly Journal of Economics, 108, 717–738.
Kraft, J., Kraft, A., 1978. On the relationship between energy and GNP, Journal of Energy and Development, 3, 401–403.
Lee. C. C., Chang. C. P., 2008. Energy consumption and economic growth in Asian economies: a more comprehensive analysis using panel data, Resources and Energy Economics, 30, 50–65.
Leow, Y G., 2004. A reexamination of the exports in Malaysia’s economic growth: after Asian Financial Crisis, 1970-2000, International Journal of Management Sciences, 11, 279-304.
Lorde, T., Kimberly Waithe b, Brian Francis 2010. The importance of electrical energy for economic growth in Barbados, Energy Economics (2010), doi:10.1016/j.eneco.2010.05.011.
Masih, A. M. M., Masih, R., 1996. Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modeling techniques, Energy Economics, 18, 165-83.
McKinnon, R. I, (1973). Money and Capital in Economic Development. Brookings Institution, Washington, DC (1973).
Mielnik, J. Goldemberg., 2002. Foreign direct investment and decoupling between energy and gross domestic product in developing countries, Energy Policy, 30, 87–89.
Morimoto, R, Hope. C., 2004. The impact of electricity supply on economic growth in Sri Lanka, Energy Economics, 26, 77-85.
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, 2331-2341.
Ng S, Perron, P., 2001. Lag Length Selection and the Construction of Unit Root Test with Good Size and Power, Econometrica 69, 1519–1554.
Odhiambo, N. M., 2009. Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach, Energy Policy, 37, 617-622.
Paul, S., Bhattacharya, R. N., 2004. Causality between energy consumption and economic growth in India: A note on conflicting results, Energy Economics, 26, 977–983.
Pesaran, M.H., Shin, Y., Smith, R., 2001. Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16, 289-326.
Sadorsky, P., 2010. The impact of financial development on energy consumption in emerging economies, Energy Policy, 38, 2528-2535.
Shahbaz, M., 2009. A Reassessment of Finance-Growth Nexus for Pakistan: Under the Investigation of FMOLS and DOLS Techniques, ICFAI Journal of Applied Economics, 1,65-80.
Shaw, E.S., 1973. Financial development in economic development, Oxford University Press, New York, USA.
Shrestha, M., Chowdhury, K, 2007. Testing financial liberalization hypothesis with ARDL modelling approach, Applied Financial Economics, 17, 1529-1540.
Soytas U, Sari R., 2003. Energy consumption and GDP: causality relationship in G-7 countries and emerging markets, Energy Economics, 25, 33–37.
Tamazian, A., Chousa, J. P., Vadlamannati. C., 2009. Does higher economic and financial development lead to environmental degradation: evidence from the BRIC countries, Energy Policy, 37, 246–253.
Turner, P., 2006. Response surfaces for an F-test for cointegration, Applied Economics Letters, 13, 479-482.
Wietze, L., Montfort, V. K., 2007. Energy consumption and GDP in Turkey: Is there a cointegration relationship? Energy Economics, 29, 1166-1178.
Wolde-Rufael, Y., 2005. Energy demand and economic growth: The African experience, Journal of Policy Modeling, 27, 891-903.
York, R., E. Rosa, T. Dietz. 2003. STIRPAT, IPAT and IMPACT: Analytic tools for unpacking the driving forces of environmental impacts, Ecological Economics, 46(3), 351– 65. Yucel, F., 2009. Causal relationships between financial development, trade openness and economic growth: The case of Turkey, Journal of Social Sciences, 5, 33-42.