Disaggregated relationship between economic growth and energy use in OECD countries: Time-series and cross-country evidence

Syed Zwick, Hélène and Syed, Sarfaraz Ali Shah and Liddle, Brantley and Lung, Sidney (2017): Disaggregated relationship between economic growth and energy use in OECD countries: Time-series and cross-country evidence.

Abstract

We examine the GDP – energy use nexus in OECD countries over the period of 1960 – 2014. For the first time, energy use and GDP data are both disaggregated into their main components. Panel cointegration techniques addressing heterogeneity and cross-sectional dependence are employed to infer the directions and the signs of long-run cross causalities between GDP and energy components. Results are threefold: first, there is a feedback relationship between total energy use and GDP at the aggregated level, mainly through the public expenditure channel. Second, the feedback relationship is validated between real GDP and transportation energy, residence energy and consumption energy, respectively, mainly through the exports and imports channels. Third,the conservation relationship is found between industrial energy and real GDP for which main transmission mechanisms are consumption, exports and imports.

• Item Type: MPRA Paper
• Language: English
• Keywords: disaggregation; energy; real GDP;cross-sectional dependence; heterogeneous panels
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q21 - Demand and Supply ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Anderton, R., Aranki, T., Bonthius, B. and Jarvis, V. (2014) “Disaggregating Okun’s Law: Decomposing the Impact of the Expenditure Components of GDP on Euro Area Unemployment”. ECB working paper.

Anderton, R. and Tewolde, T. (2011) “The Global Financial Crisis. Trying to understand the global trade downturn and recovery”, The World Economy Journal, 34(5), 741-763.

Apergis, N. and Payne, J.E. (2009) “Energy consumption and economic growth in Central America: Evidence from a panel cointegration and error correction model”, Energy Economics, 31, 211-216.

Bai, J. and Carrion-i-Silvestre, J. (2009) “Structural changes, common stochastic trends, and unit roots in panel data”, Review of Economic Studies, 76(2), 471-501.

Bai, J. and Ng, S. (2004) “A PANIC attack on unit roots and cointegration”, Econometrica, 72, 1127-1177.

Bai, J. and Ng, S. (2002) “Determining the number of factors in approximate factor models”, Econometrica, 70(1), 191-221.

Banerjee, A., Marcellino, M. and Osbat, C. (2000) “Some cautions on the use of panel methods for integrated series of macro-economic data”, Working Paper 170, IGIER.

Banerji, A., Lin, H. and Saksonovs, S. (2015) “Youth Unemployment in Advanced Europe: Okun’s Law and Beyond”, IMF Working Paper, WP/14/5.

Bowden, N. and Payne, J.E. (2009) “The causal relationship between US energy consumption and real output: a disaggregated analysis”, Journal of Policy Modeling, 31(2), 180-188.

Breitung, J. (2000) “The local power of some unit root tests for panel data”, In: Nonstationary panels, panel cointegration, and dynamic panels, Baltagi, B.H. (Ed.), Elsevier, Amsterdam, 161-177.

Bruns, S.B. and Gross, C. (2013) “What if energy time series are not independent? Implications for energy-GDP causality analysis”, Energy Economics, 40, 753-759.

Bruns, S., Gross, C. and Stern, D. (2014) “Is there really Granger causality between energy use and output?”, Energy Journal, 35(4), 101-134.

Campbell, J. and Perron, P. (1991) “Pitfalls and opportunities: what macroeconomists should know about nit roots”, in Blanchard, O. and Fisher, S. (eds), NBER Macroeconomics Annual, MIT Press, Cambridge, MA (1991), 141-201.

Canning, D. and Pedroni, P. (2008) “Infrastructure, long-run economic growth and causality tests for cointegrated panels”, The Manchester School, 76, 504-527.

Engle, R. and Granger, C.W. (1987) “Co-integration and error correction: representation, estimation and testing”, Econometrica, 55(2), 251-276.

Erdal, G., Erdal, H. and Esengun, K. (2008) “The causality between energy consumption and economic growth in Turkey”, Energy Policy, 36, 3838-3842.

Erol, U. and Yu, E.S.H. (1989) “Spectral analysis of the relationship between energy consumption, employment and business cycles”, Resources and Energy, 11, 395-412.

Ferguson, R., Wilkinson, W. and Hill, R. (2000) “Electricity use and economic development, Energy policy, 28, 923-934.

Gregory, A.W., Nason, J.M. and Watt, P.G. (1996) “Testing for structural breaks in cointegrated relationships”, Journal of econometrics, 71, 321-341.

Gross, C. (2012) “Explaining the (non-) causality between energy and economic growth in the US—a multivariate sectoral analysis”, Energy Economics, 34(2), 489-499.

Hadri, K. (2000) “Testing for stationarity in heterogeneous panel data”, Econometrics Journal, 3, 148-161.

Halicioglu, F. (2009) “An econometric study of CO2 emissions, energy consumption, income and foreign trade in Turkey”, Energy Policy, 37, 1156-1164.

Hsiao, C. (1979) “Autoregressive modelling of Canadian money and income data”, Journal of American Statistics Association, 74(367), 553-560.

Huang, B.N., Hwang, M.J. and Yang, C.W. (2008) “Causal relationship between energy consumption and GDP growth revisited: a dynamic panel data approach”, Ecological Economics, 67, 41-54.

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

Kapetanios, G., Pesaran, M. and Yamagata, T. (2011) “Panels with non-stationary multifactor error structures”, Journal of Economics, 160, 326-348.

Karanfil, F. (2008) “Energy consumption and economic growth revisited: does the size of unrecorded economy matter?”, Energy Policy, 36(8), 3029-3035.

Kraft, J. and Kraft, A. (1978) “On the relationship between energy and GNP”, Journal of Energy and Development, 3, 401-403.

Lee, C.C. and Chang, C.P. (2005) “Structural breaks, energy consumption, and economic growth revisited: evidence from Taiwan”, Energy Economics, 34, 1086-1093.

Lee, C.C. and Chang, C.P. (2008) “Energy consumption and economic growth in Asian economies: a more comprehensive analysis using panel data”, Resource and Energy Economics, 30, 50-65.

Levin, A., Lin, C.F. and Chu, C.S. (2002) “Unit root tests in panel data: asymptotic and finite sample properties”, Journal of econometrics, 108, 1-22.

Liddle, B. and Lung, S. (2015) “Revisiting energy consumption and GDP causality: importance of a-priori hypothesis testing, disaggregated data, and heterogeneous panels”, Applied Energy, 142C, 44-55.

Masih, A. and Masih, R. (1996) “Energy consumption and real income temporal causality, results for a multi-country study based on cointegration and error-correction techniques”, Energy Economics, 18, 165-183.

Mehrara, M. (2007) “Energy-GDP relationship for oil-exporting countries: Iran, Kuwait and Saudi Arabia”, OPEC Review, 31, 1-16.

Narayan, P.K. and Smyth, R. (2008) “Energy consumption and real GDP in G7 countries: new evidence from panel cointegration with structural breaks”, Energy Economics, 30, 2331-2341.

Ozturk, I. (2010) “A literature survey on energy-growth nexus”, Energy Policy, 38, 340-349.

Payne, J. (2010) “Survey of the international evidence on the causal relationship between energy consumption and growth”, Journal of Economic Studies, 37(1), 53-95.

Pesaran, M. (2004) “General diagnostic tests for cross section dependence in panels”, IZA Discussion Paper No. 1240.

Pesaran, M. (2006) “Estimation and inference in large heterogeneous panels with a multifactor error structure”, Econometrica, 74(4), 967-1012.

Pesaran, M. and Shin, Y. (1999) “An autoregressive distributed lag modelling approach to cointegrated analysis”, In: Strom, S. (Ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centermial Symposium. Cambridge University Press, Cambridge.

Pesaran, M., Shin, Y. and Smith, R. (2001) “Bounds testing approaches to the analysis of level relationships”, Journal of Applied Economics, 16(3), 289-326.

Salim, R.A., Hassan, K. and Shafiei, S. (2014) “Renewable and non-renewable energy consumption and economic activities: further evidence from OECD countries”, Energy Economics, 44, 350-360.

Sargan, J.D. and Bhargava, A. (1983) “Testing residuals from least squares regression for being generated by the Gaussian random walk”, Econometrica, 51(1), 153-174.

Sims, C. (1972) “Money, income and causality”, American Economic Review, 62(4), 540-552.

Soytas, U. and Sari, R. (2009) “Energy consumption, economic growth, and carbon emissions: challenges faced by an EU candidate member”, Ecologic Economics, 68, 1667-1675.

Squalli, J. (2007) “Electricity consumption and economic growth: bounds and causality analyses for OPEC members”, Energy Economics, 29, 1192-1205.

Stern, D.I. (1993) “Energy and economic growth in the USA. A multivariate approach”, Energy economics, 15, 137-150.

Thoma, M. (2004) “Electrical energy usage over the business cycle”, Energy Economics, 26, 363-385.

Toda, H. and Yamamoto, T. (1995) “Statistical inference in vector autoregressions with possibly integrated processes”, Journal of Economics, 66(1-2), 225-250.

Toman, M. and Jemelkova, B. (2003) “Energy and economic development: an assessment of the state of knowledge”, Discussion paper, Resources for the future, 1616 P. Street, NW, Washington, D.C. 20036.

Tugcu, C.C., Ozturk, I. and Aslan, A. (2012) “Renewable and non-renewable energy consumption and economic growth relationship revisited: evidence from G7 countries”, Energy Economics, 34(6), 1942-1950.

Westerlund, J. and Edgerton, D. (2008) “A simple test for cointegration in dependent panels with structural breaks”, Oxford Bulletin of Economics and Statistics, 70, 665-704.

Yu, E.S.H. and Choi, J.Y. (1985) “The causal relationship between energy and GNP: an international comparison”, Journal of Energy Development, 10, 249-272.

Zachariadis, T. (2007) “Exploring the relationship between energy use and economic growth with bivariate models: new evidence from G7 countries”, Energy economics, 29(6), 1233-1253.

Zamani, M. (2007) “Energy consumption and economic activities in Iran”, Energy Economics, 29(6), 1135-1140.

Zhang, X.P. and Cheng, X.M. (2009) “Energy consumption, carbon emissions, and economic growth in China, Ecological Economics, 68, 2706-2712.