International Science Index


7879

Energy Consumption and Economic Growth in South Asian Countries: A Co-integrated Panel Analysis

Abstract:

This study examines causal link between energy use and economic growth for five South Asian countries over period 1971-2006. Panel cointegration, ECM and FMOLS are applied for short and long run estimates. In short run unidirectional causality from per capita GDP to per capita energy consumption is found, but not vice versa. In long run one percent increase in per capita energy consumption tend to decrease 0.13 percent per capita GDP. i.e. Energy use discourage economic growth. This short and long run relationship indicate energy shortage crisis in South Asia due to increased energy use coupled with insufficient energy supply. Beside this long run estimated coefficient of error term suggest that short term adjustment to equilibrium are driven by adjustment back to long run equilibrium. Moreover, per capita energy consumption is responsive to adjustment back to equilibrium and it takes 59 years approximately. It specifies long run feedback between both variables.

References:
[1] Ikenberry, G.J. (1986). The irony of state strength: Comparative responses to the oil shocks in the 1970s. International Organization, 40 (1), 105-137.
[2] Time Magazine, 1979-02-05. http://www.time.com/time/
[3] Kraft, j., and Kraft, A. (1978). On the relationship between energy and GNP. Journal of Energy and Development, 3, 401-403.
[4] Akarca, A.T., and Long, T.V. (1979). Energy and employment: a time series analysis of the causal relationship. Resources and Energy, 5, 326- 331.
[5] Akarca, A.T., and Long, T.V. (1980). On the relationship between energy and GNP: a re-examination. Journal of Energy and Development, 5, 326-331.
[6] Wolde-Rufael, Y. (2006). Electricity consumption and economic growth; a time series experience for 17 African countries. Energy Policy, 34, 1106-1114.
[7] Masih, A. M. M., and Masih, R. (1996). Electricity consumption, real income and temporal causality: results from a multi-country study based on cointegration and error correction modeling techniques. Energy Economics, 18, 165- 183.
[8] Jumbe, C. B. L. (2004). Cointegration and causality between electricity consumption and GDP: empirical evidence from Malawi. Energy Economics, 26, 61-68.
[9] Yu, S.H., and Choi, J.Y. (1985). The causal relationship between energy and GNP: an international comparison. Journal of Energy and Development, 10, 249- 272.
[10] Energy Information Administration (EIA), http://www.eia.doe.gov
[11] South Asian Regional Initiative for Energy (SARI/ENERGY), http://www.sari.energy.org
[12] Yu, E.S.H., and Hwang, B-K. (1984). The relationshio between energy and GNP: further results. Energy economics, 6(3), 186-190.
[13] Erol, U., and Yu, E.S.H. (1987). Time series analysis of the causal relationship relationship between US energy and employment. Resources of Energy, 9, 75-89.
[14] Aqeel, A., and Butt, M. (2001). The relationship between energy consumption and economic growth in Pakistan. Asia-Pacific Development Journal, 8(2), 101-110.
[15] Zahid, K. (2008). Energy-GDP relationship: a casual analysis for the five countries of South Asia. Applied Econometrics and International Development, 8(1), 167-180.
[16] Khan, M, A., and Qayyum, A. (2006). Dynamic modeling of energy and growth in South Asia, Working paper. Pakistan Institute of Development Economics.
[17] Asafu-Adjaye, J. (2000). The relationship between energy consumption, energy prices and economic growth: time series evidence from Asian developing countries. Energy Economics, 22, 615-625.
[18] Yoo, S.H. (2006). The causal relationship between electricity consumption and economic growth in the ASEAN countries. Energy Policy, 34 (18), 3573-3582.
[19] Tang, C.F. (2008). A re-examination of the relationship between electricity consumption and economic growth in Malaysia. Energy policy, 36, 3077-3085.
[20] Apergis, N., and Payne, J.E. (2009). CO2 emissions, energy usage and output in centeral America. Energy Policy, 37, 3282-3286.
[21] World Bank. (2008). World Development Indicators
[CD Rom 2009]. World Bank, Washington, D.C.
[22] Ghali, K. H., and El-sakka, M.I.T. (2004). Energy use and output growth in Canada: a multivariate cointegration analysis. Energy Economics, 26, 225-238.
[23] Asteriou, D. (2006). Panel data econometrics. In, Applied econometrics: a modern approach using Eviews and Microfit (1st ed, pp.367-377). Palgrave Macmillan, New York.
[24] Phillips, P. (1992). Hyper-consistent estimation of a unit root in time series regression. Cowles Foundation Discussion Papers, No. 1040.
[25] Maddala, G.S., and Wu. S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61, 631-652.
[26] 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- 24.
[27] Im, K. S., Pesaran, M. H., and Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53-74.
[28] Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to PPP hypothesis: new results. Econometric Theory, 20(3), 597-627.
[29] Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90 (1), 1-44.
[30] Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated panels, nonstationary panels, panel cointegration and dynamic panels. Advances in Econometrics , 15, 93-130.
[31] Engle, R.F., and Granger, C.W.J. (1987). Cointegration and error correction: representation, estimation, and testing. Econometrica, 55, 251-276.
[32] Nelson, C.R., and Plosser, C.I. (1982). Trends and random walks in macroeconomic time series: some evidence and implications. Journal of Monetary Economics, 10(2), 139-162.
[33] Lee, C.C. (2005). Energy consumption and GDP in developing countries: a cointegrated panel analysis. Energy Economics, 27, 415- 427.
[34] Sadorsky, p. (2009). Renewable energy consumption and income in emerging economies. Energy Policy, 37(10), 4021-4028.
[35] Sari, R., and Soytas, U. (2007). The growth of income and energy consumption in six developing countries. Energy Policy, 35, 889-898.