Munich Personal RePEc Archive

Trade Openness, Financial Development Energy Use and Economic Growth in Australia:Evidence on Long Run Relation with Structural Breaks

Islam, Faridul and Shahbaz, Muhammad and Rahman, Mohammad Mafizur (2013): Trade Openness, Financial Development Energy Use and Economic Growth in Australia:Evidence on Long Run Relation with Structural Breaks.

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Abstract

The paper implements the autoregressive distributed lag (ARDL) bounds testing, supplemented by the Johansen-Juselius (JJ) approaches to cointegration to explore a long run relation among energy use, economic growth, financial development, capital, and trade openness in Australia. We also apply the vector error correction model (VECM) to understand the short run dynamics. The study period, 1965 – 2009, is hallmarked by major shocks across the globe which can potentially cause structural break in the series. To recognize this possibility, we implement the Zivot-Andrews (1992) and the Clemente et al. (1998) tests. The results confirm the long run relationship among the series. The Granger causality test shows bidirectional causality between energy consumption and economic growth; financial development and energy consumption; trade openness and economic growth; economic growth and financial development; energy consumption and trade openness; and financial development and trade openness. The findings offer fresh perspectives and insight for crafting energy policy for sustained economic growth.

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