How Linked are Energy and GDP: Reconsidering Energy-GDP Cointegration and Causality for Disaggregated OECD Country Data.

Liddle, Brantley (2006): How Linked are Energy and GDP: Reconsidering Energy-GDP Cointegration and Causality for Disaggregated OECD Country Data. Published in: International Journal of Energy, Environment and Economics , Vol. 13, No. 2 (2006): pp. 97-113.

Abstract

This study is different from previous energy-GDP cointegration/causality ones by examining whether total energy consumption by industry causes total industry GDP (or vice versa), and whether per capita GDP causes per capita road and residential sector energy use (or vice versa) for a number of OECD countries. The primary findings are that nearly all of the data series analyzed are not cointegrated, and that by far the most robust result is that of Granger-noncausality; thus, developed economies may be far more flexible in their relation with energy than is often understood, and the price mechanism may be a none-too-costly policy instrument to lower energy consumption.

• Item Type: MPRA Paper
• Language: English
• Keywords: Energy consumption disaggregated; Economic growth; Granger-causality; Cointegration; OECD countries
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Akarca, A.T. and Long, T.V., 1980, On the relationship between energy and GNP: a reexamination. Journal of Energy and Development 5, 326-331.

Banerjee, A. et al., 1986, Exploring equilibrium relationships in econometrics through static models: some monte carlo evidence, Oxford Bulletin of Economics and Statistics, 48, 253-277.

Cheng, Benjamin S. and Lai, Tin Wei. 1997. An investigation of co-integration and causality between energy consumption and economic activity in Taiwan. Energy Economics 19, 435-444.

Coondoo, Dipankor and Dinda, Soumyananda. 2002. Causality between income and emission: a country group-specific econometric analysis. Ecological Economics 40, 351-367.

Elliott, G., Rothenberg, T.J., and Stock, J.H. , 1996, Efficient tests for an autoregressive unit root, Econometrica, 64, 813-836.

Engle, R.F. and Granger, C.W.J., 1987, Co-integration and error correction: representation, estimation, and testing, Econometrica, 55, 2, 251-276.

Erol, U. and Yu, E.S.H. 1987. On the causal relationship between energy and income for industrialized countries. Journal of Energy and Development 13, 113-122.

Glasure, Yong U. and Lee, Aie-Rie. 1997. Cointegration, error-correction, and the relationship between GDP and energy: The case of South Korea and Singapore. Resource and Energy Economics 20, 17-25.

Hall, A., 1994, Testing for a unit root in time series with pretest data-based model section, Journal of Business and Economic Statistics, 12, 461-470.

Hondroyiannis, George, Lolos, Sarantis, and Papapetrou, Evangelia. 2002. Energy consumption and economic growth: assessing the evidence from Greece. Energy Economics 24, 319-336.

Kraft, J. and Kraft, A. 1978. On the relationship between energy and GDP. Journal of Energy and Development 3, 401-403.

MacKinnon, J.G., 1991, Critical values for co-integration tests, in R.F. Engle and C.W.J. Granger (eds.), Long-Run Economic Relationships, Oxford University Press, 267-276.

Maddala, G.S. and Kim, In-Moo, 2000, Unit Roots, Cointegration, and Structural Change, Cambridge University Press, Cambridge, UK.

Masih, Abul M.M. and Masih, Rumi. 1996. Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modelling techniques. Energy Economics 18, 165-183.

Masih, Abul M.M. and Masih, Rumi. 1997. On the temporal causal relationship between energy consumption, real income, and prices: some new evidence from asian-energy dependent NICs based on a multivariate cointegration/vector error-correction approach. Journal of Policy Modeling 19 (4), 417-440.

Ng, S. and Perron, P., 1995, Unit root tests in ARMA models with data-dependent methods for the selection of the truncation lag, Journal of American Statistical Association, 90, 268-281.

Schipper, Lee, Scholl, Lynn, and Price, Lynn. 1997. Energy use and carbon emissions from freight in 10 industrialized countries: An analysis of trends from 1973 to 1992. Transportation Research Part D, 2 (1), 57-76.

Schipper, Lee, Unander, Fridtjof, Murtishaw, Scott, and Ting, Mike. 2001. Indicators of energy use and carbon emissions: Explaining the energy economy link. Annual Review of Energy and Environment, 26, 49-81.

Soytas, Ugur and Sari, Ramazan. 2003. Energy consumption and GDP: causality relationship in G-7 countries and emerging markets. Energy Economics 25, 33-37.

Stern, David I. 2000. A multivariate cointegration analysis of the role of energy in the US macroeconomy. Energy Economics 22, 267-283.

Yang, Hao-Yen. 2000. A note on the causal relationship between energy and GDP in Taiwan. Energy Economics 22, 309-317.

Yu, E.S.H. and Choi, J. 1985. The causal relationship between energy and GNP: an international comparison. The Journal of Energy and Development, 11, 249-272.

Yu, E.S.H. and Hwang, B.K. 1984. The relationship between energy and GNP: further results. Energy Economics 6, 186-190.

Yu, E.S.H. and Jin, J.C. 1992. Cointegration tests of energy consumption, income, and employment. Resources and Energy 14, 259-266.