Output, renewable and non-renewable energy consumption and international trade: Evidence from a panel of 69 countries

Ben Jebli, Mehdi and Ben Youssef, Slim (2013): Output, renewable and non-renewable energy consumption and international trade: Evidence from a panel of 69 countries.

Abstract

This paper uses panel cointegration techniques to examine the causal relationship between output, renewable and non-renewable energy consumption, and international trade for a sample of 69 countries during the period 1980-2007. In the short-run, Granger causality tests show that there is evidence of a bidirectional causality between output and trade (exports or imports), a one way causality running from renewable energy consumption to trade, and a bidirectional feedback causality between non-renewable energy consumption and trade. Interestingly, there is no direct short-run causality between the three variables renewable energy, non-renewable energy and output. However, there is an indirect short-run causality running from renewable energy to both non-renewable energy and output, which occurs through trade. Also, there is an indirect and bidirectional short-run causality between non-renewable energy and output through trade. In the long-run, OLS, FMOLS and DOLS estimates suggest that renewable and non-renewable energy consumption and trade have a positive and statistically significant impact on economic growth. Our policy recommendations are to encourage trade openness because this may reduce the share of non-renewable energy consumption in total energy consumption. Indeed, through technology transfer and economies of scale, more trade openness could be a good policy for combating global warming by encouraging the use of renewable energies, while increasing output.

• Item Type: MPRA Paper
• Language: English
• Keywords: Renewable and non-renewable electricity consumption; Trade openness; Panel cointegration.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Apergis, N., Payne, J.E., 2010a. Renewable energy consumption and economic growth evidence from a panel of OECD countries. Energy Policy, 38, 656-660.

Apergis, N., Payne, J.E., 2010b. Renewable energy consumption and growth in Eurasia. Energy Economics, 32, 1392-1397.

Apergis, N., Payne, J.E., 2011. The renewable energy consumption-growth nexus in Central America. Applied Energy, 88, 343-347.

Apergis, N., Payne, J.E., 2012. Renewable and non-renewable energy consumption-growth nexus: Evidence from a panel error correction model. Energy Economics, 34, 733-738.

Banerjee, A., 1999. Panel data unit roots and cointegration: an overview. Oxford Bulletin of Economics and Statistics, 61 (S1), 607-629.

Breitung, J., 2000. The local power of some unit root tests for panel data, in: B.Baltagi (Ed.) Non-Stationary panels, panel cointegration, and dynamic panels, Advances in Econometrics, 15, 161-178, JAI Press, Amsterdam.

Dickey, D.A., Fuller, W.A., 1979. Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427-431.

Engle, R.F., Granger C.W.J., 1987. Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55, 251-276.

Heston, A., Summers, R., Aten, B., 2012. Penn world table version 7.1. Center of comparisons of production, income and prices at the University of Pennsylvania. Accessed at: https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php.

Im, K.S., Pesaran, M.H., Shin, Y., 2003. Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53-74.

International Energy Agency, 2012. Renewable Energy Outlook. Available online at: www.worldenergyoutlook.org/media/weowebsite/2012/WEO2012_Renewables.pdf.

Kao, C., 1999. Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90, 1-44.

Lean, H.H., Smyth, R., 2010a. Multivariate Granger causality between electricity generation, exports and GDP in Malaysia. Energy, 35, 3640–3648.

Lean, H.H., Smyth, R., 2010b. On the dynamics of aggregate output, electricity consumption and exports in Malaysia: Evidence from multivariate Granger causality tests. Applied Energy, 87, 1963-1971.

Levin, A., Lin, C.F., Chu, C.S., 2002. Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108, 1-24.

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.

Pedroni, P., 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61, 653-670.

Pedroni, P., 2001. Purchasing power parity tests in cointegrated panels. Review of Economics and Statistics, 83, 727-731.

Pedroni, P., 2004. Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20, 597-625.

Phillips, P.C.B., Perron, P., 1988. Testing for a unit root in time series regressions. Biometrika, 75, 335-346.

Sadorsky, P., 2009a. Renewable energy consumption, CO2 emissions and oil prices in the G7 countries. Energy Economics, 31, 456-462.

Sadorsky, P., 2009b. Renewable energy consumption and income in emerging economies. Energy policy, 37, 4021-4028.

Sadorsky, P., 2011. 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.

World Bank, 2010. World Development Indicators. Accessed at: http://www.worldbank.org/data/onlinedatabases/onlinedatabases.html.

United Nations Environment Program and the World Trade Organization, 2009. Trade and Climate Change. Available at http://www.wto.org.

World Trade Organization, 2011. Harnessing trade for sustainable development and a green economy. Available at: www.wto.org.