Muhammad, Shahbaz and Saleheen, Khan and Mohammad, Iqbal Tahir (2012): The Dynamic Link between Energy Consumption, Economic Growth, Financial Development and Trade in China: Fresh Evidence from Multivariate Framework Analysis.
Download (176kB) | Preview
This study investigates the relationship between energy consumption and economic growth by incorporating financial development, international trade and capital as important factors of production function in case of China over the period of 1971-2011. The ARDL bounds testing approach to cointegration was applied to examine long run relationship among the series while stationarity properties of the variables was tested by applying structural break test.
Our empirical evidence confirmed long run relationship among the variables. The results showed that energy consumption, financial development, capital, exports, imports and international trade have positive impact on economic growth. The Granger causality analysis revealed that unidirectional causal relationship running from energy consumption to economic growth. Financial development and energy consumption Granger cause each other. There is bidirectional causality between trade and energy consumption. The feedback relation exists between financial development and international trade. There is also bidirectional causality exists between capital and energy consumption, financial development and economic growth and, international trade and economic growth. This paper makes significant contribution in energy literature and opens up new direction for policy makers to explore new and alternative sources of energy to meet the rising demand of energy due to sustained rate of economic growth.
|Item Type:||MPRA Paper|
|Original Title:||The Dynamic Link between Energy Consumption, Economic Growth, Financial Development and Trade in China: Fresh Evidence from Multivariate Framework Analysis|
|English Title:||The Dynamic Link between Energy Consumption, Economic Growth, Financial Development and Trade in China: Fresh Evidence from Multivariate Framework Analysis|
|Keywords:||Growth, Energy, Financial Development, Trade|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
F - International Economics > F1 - Trade
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy
|Depositing User:||Muhammad Shahbaz|
|Date Deposited:||01. Dec 2012 01:31|
|Last Modified:||22. Aug 2015 05:14|
Akarca, A.E., Long, T.V.I.I., 1980. On the relationship between energy and GNP: A re-examination. The Journal of Energy and Development 5, 326-331.
Akinlo, A.E., 2008. Energy consumption and economic growth: evidence from 11 Sub-Sahara African countries. Energy Economics 30, 2391-2400.
Aqeel, A., Butt, M. S., 2001. The relationship between energy consumption and economic growth in Pakistan. Asia-Pacific Development Journal 8, 101-110.
Bannerjee, A., J. Dolado., R. Mestre., (1998). Error-correction mechanism tests for cointegration in single equation framework. Journal of Time Series Analysis 19, 267-83.
Belke, A., Dobnik, F., Dreger, C., 2011. Energy consumption and economic growth: new insights into the cointegration relationship. Energy Economics 33, 782-789.
Bell, C., Rousseau, P. L., 2001. Post-independence India: A case of finance-led industrialization? Journal of Development Economics 65, 153-175.
Bowden, N., Payne, J.E., 2009. The causal relationship between US energy consumption and real output: a disaggregated analysis. Journal of Policy Modelling 31, 180-188.
Brown, R.L., Durbin, J., Ewans, J.M. 1975. Techniques for testing the constance of regression relations overtime. Journal of Royal Statistical Society 37, 149-172.
Chontanawat, J., Hunt, L.C., Pierse, R., 2008. Does energy consumption cause economic growth? Evidence from a systematic study of over 100 countries. Journal of Policy Modeling 30, 209-220.
Clemente, J., Antonio, M., Marcelo, R., 1998. Testing for a unit root in variables with a double change in the mean. Economics Letters 59, 175-182.
Cuadros, A., Orts, V., Alguacil, M., 2004. Openness and growth: Re-examining foreign direct investment, trade and output linkages in Latin America. The Journal of Development Studies 40, 167-192.
Dan, Y., Lijun, Z., 2009. Financial development and energy consumption: an empirical research based on Guangdong Province. Paper presented at International Conference on Information Management, Innovation Management and Industrial Engineering, 2009, ICIII, 3, 102-105.
Dritsaki, M., Dritsaki, C., Adamopoulos, A., 2004. A causal relationship between trade, foreign direct investment, and economic growth for Greece. American Journal of Applied Sciences 1, 230-235.0,
Erkan, C., Mucuk, M., Uysal, D., 2010. The Impact of Energy Consumption on Exports: The Turkish Case. Asian Journal of Business Management 2, 17-23.
Erol, U., Yu, E.S.H., 1988. On the causal relationship between energy and income for industrialized countries. The Journal of Energy and Development 13, 113-122.
Fatai, K.., Oxley, L., Scrimgeour, F.G., 2004. Modeling the causal relationship between energy consumption and GDP in New Zealand, Australia, India, Indonesia, The Philippines and Thailand. Mathematical Computation and Simulation 64, 431-445.
Ghali, K.H, El-Sakka, M IT., 2004. Energy use and output growth in Canada: a multivariate cointegration analysis. Energy Economics 26, 225-238.
Giles, J. A., Williams, C. L., 2000. Export-led growth: A survey of the empirical literature and some non-causality results, Part I. Journal of International Trade and Economic Development 9, 261-337.
Halicioglu, F., 2011. A dynamic study of income, energy and exports in Turkey. Energy 36, 3348-3354.
Hossain, M. S., 2012. Multivariate Granger Causality between Economic Growth, Electricity Consumption, Exports and Remittance for the Panel of Three SAARC Countries. Global Journal of Management and Business Research 12, 40-54.
Huang, B., Hwang, M.J., Yang, C.W., 2008. Causal relationship between energy consumption and GDP growth revisited: a dynamic panel data approach. Ecological Economics 67, 41–54.
Islam, F., Shahbaz, M., Alam, M., 2013. Financial development and energy consumption nexus in Malaysia: a multivariate time series analysis. Economic Modelling 30, 435-441.
Johansen, S., Juselies, K., 1990. Maximum likelihood estimation and inferences on co-integration. Oxford Bulletin of Economics and Statistics 52, 169-210.
Karanfil. F., 2009. How many times again will we examine the energy–income nexus using a limited range of traditional econometric tools? Energy Policy 36, 3019-3025.
Kraft, J., Kraft, A., 1978. On the relationship between energy and GNP. Journal of Energy and Development 3, 401-403.
Lean, H.H., Smyth, R., 2010a. On the dynamics of aggregate output, electricity consumption and exports in Malaysia: Evidence from multivariate Granger causality tests. Applied Energy 87, 1963-1971.
Lean, H.H., Smyth, R., 2010b. Multivariate granger causality between electricity generation, exports, prices and GDP in Malaysia. Energy 35, 3640-3648.
Lee, C. 2006. The causality relationship between energy consumption and GDP in G-11 countries revisited. Energy Policy 34, 1086-1093.
Lee, C. And Chien, M. 2010. Dynamic modelling of energy consumption, capital stock, and real income in G-7 countries. Energy Economics 32, 564-581.
Leow, Y. G. A. 2004. Reexamination of the exports in Malaysia’s economic growth: after Asian financial crisis, 1970-2000. International Journal of Management Sciences 11, 79-204.
Lütkepohl, H. 1982. Non-causality due to omitted variables. Journal of Econometrics 19, 367-378.
Lütkepohl, H., 2006. Structural vector autoregressive analysis for cointegrated variables. AStA Advances in Statistical Analysis 90, 75-88.
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.
Mielnik, O., Goldemberg, J., 2002. Foreign direct investment and decoupling between energy and gross domestic product in developing countries. Energy Policy 30, 87-89.
Narayan, P. K., Prasad, A., 2008. Electricity consumption-real GDP causality nexus: evidence from a bootstrapped causality test for 30 OECD countries. Energy Policy 36, 910-918.
Narayan, P.K., 2005. The saving and investment nexus for China: Evidence from cointegration tests, Applied Economics 17, 1979-1990.
Narayan, P.K., Narayan, S., 2005. Estimating income and price elasticities of imports for Fiji in a cointegration framework. Economic Modelling 22, 423-438.
Narayan, P.K., Smyth, R., 2005. Electricity consumption, employment and real income in Australia: Evidence from multivariate granger causality Tests. Energy Policy 33, 1109-1116.
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.
Narayan, P.K., Smyth, R., 2009. Multivariate granger causality between electricity consumption, exports and GDP: Evidence from a panel of Middle Eastern countries. Energy Policy 37, 229-236.
Ouattara, B., 2004. Foreign aid and fiscal policy in Senegal. Mimeo University of Manchester, Manchester. UK.
Ozturk, A., 2010. A literature survey on energy-growth nexus. Energy Policy 38, 340-349.
Payne, J., 2010. A survey of the electricity consumption-growth literature. Applied Energy 87, 3723-3731.
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.
Sadorsky, P., 2011a. Financial development and energy consumption in Central and Eastern European frontier economies. Energy Policy 39, 999-1006.
Sadorsky, P., 2011b. Trade and energy consumption in the Middle East, Energy Economics, 33, 739-749.
Sadorsky, P., 2012. Energy consumption, output and trade in South America, Energy Economics, 34, 476-488.
Sami, J., 2011. Multivariate Cointegration and Causality between Exports, Electricity Consumption and Real Income per Capita: Recent Evidence from Japan. International Journal of Energy Economics and Policy 3, 59-68.
Shahbaz, M., 2012. Does trade openness affect long run growth? Cointegration, causality and forecast error variance decomposition tests for Pakistan. Economic Modelling 29, 2325-2339.
Shahbaz, M., Feridun, M., (2012). Electricity consumption and economic growth empirical evidence from Pakistan. Quality and Quantity 46, 1583-1599.
Shahbaz, M., Lean, H. H., Farooq, A., 2013. Natural Gas Consumption and Economic Growth in Pakistan. Renewable and Sustainable Energy Reviews 18, 87-94.
Shahbaz, M., Lean, H.H. 2012. Does financial development increase energy consumption? The role of industrialization and urbanisation in Tunisia. Energy Policy 40, 473-479.
Shahbaz, M., Lean, H.H., (2012b). Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia. Energy Policy 40, 473-479.
Shuyun, Y., Donghua, Y., 2011. The causality between energy consumption and economic growth in China: using panel method in a multivariate framework. Energy Procedia 5, 808-812.
Soytas U, Sari R., 2003. Energy consumption and GDP: causality relationship in G-7 countries and emerging markets. Energy Economics 25, 33-37.
Stern D. I., 1993. Energy growth in the USA: a multivariate approach. Energy Economics15, 137-150.
Stern D. I., 2000. A multivariate cointegration analysis of the role of energy in the US macroeconomy. Energy Economics 22, 267-283.
Stern, D. I., Cleveland, C. J ., 2004. Energy and economic growth. Rensselaer Working Papers in Economics 0410, Rensselaer Polytechnic Institute, Department of Economics.
Sultan, R., 2011. An econometric study of aggregate output, energy and exports in Mauritius – implications for trade and climate policy. University of Mauritius, Reduit, Mauritius.
Tamazian, A., Chousa, J. P., Vadlamannati, C., 2009. Does higher economic and financial development lead to environmental degradation: Evidence from BRIC countries. Energy Policy 37, 246-253.
Turner P. Response surfaces for an F-test for cointegration. Applied Economics Letters 2006;13:479-482.
Wang Y., Wang, Y., Zhou, J., Zhu, X., Lu, G., 2011. Energy consumption and economic growth in China: a multivariate causality test. Energy Policy 39, 4399–4406.
Wolde-Rufael Y. 2009. Energy consumption and economic growth: The experience of African countries revisited. Energy Economics 31, 217-224.
Xu, Z., 2000. Financial development, Investment, and Economic growth. Economic Inquiry 38, 331-344.
You, J., 2012. China’s energy consumption and sustainable development: Comparative evidence from GDP and genuine savings. Renewable and Sustainable Energy Reviews 15, 2984–2989.
Yu, E. S. H., Jin, J. C., 1992. Cointegration tests of energy consumption, income and employment. Resources Energy 14, 259-266.
Yu, E.S.H., Hwang, B.K., 1984. The relationship between energy and GNP: further results. Energy Economics 6, 186-190.
Yuan, J-H., Kang, J-G., Zhao, C-H., Hu, Z-G., 2008. Energy consumption and economic growth: Evidence from China at both aggregated and disaggregated levels. Energy Economics 30, 3077-3094.
Zhang, C., Xu, J., 2012. Retesting the causality between energy consumption and GDP in China: Evidence from sectoral and regional analyses using dynamic panel data. Energy Economics 34, 1782-1789.
Zhou, N., Levine, M.D., Price, L., 2010. Overview of current energy-efficiency policies in China. Energy Policy 38, 6439–6452.
Zivot, E., Andrews, D., 1992. Further evidence of great crash, the oil price shock and unit root hypothesis. Journal of Business and Economic Statistics 10, 251-270.