Abstract
This study analyzes a dynamic long-run and short-run causal nexus between energy consumption and economic growth in the presence of capital, labor, and urbanization over the period 1971–2014, in Malaysia. The stationarity issue was tested using augmented Dickey–Fuller (ADF), Kwiatkowski–Phillips–Schmidt–Shin (KPSS), and Ng–Perron tests. However, a dynamic long-run co-integration relation between variables was checked through the ARDL technique. An unrestricted vector error correction model (MUVECM) was used to estimate the short-run and long-run dynamic relations between the parameters and the Engle–Granger method was used for causality analysis. Results of statistical analysis confirmed that all variables were found to be I (1) except variable labour was I(0) and none of the variables was I(2). Total energy consumption Granger caused GDP in one direction over the period 1992-2010 in the case of Croatia. However, labor and urbanization impacts were mixed. The Granger causality analysis confirmed mixed results in the short run and the long run. Moreover, estimated results confirmed a feedback hypothesis between income and capital was in the short term and the long run. The short-run and long-run causal effects of labor force on economic growth were confirmed. This study provides important insights to policymakers and energy economists. Prudent energy conservation policies and economically improved measures would be of great help. However, demand-side management-based policies would have no adverse effect on the economic performance of Malaysia.
Highlights
Energy as a factor of production has been considered one of the dominant contributors in the growth process
The augmented Dickey–Fuller (ADF) and Ng–Perron tests are based on the null hypothesis (H0) of non-stationarity versus Ha of no unit root
Contrary to the available previous studies, the findings of the current study further suggest a bidirectional short-run and long-run causal association between income and capital
Summary
Energy as a factor of production has been considered one of the dominant contributors in the growth process. In the existing energy economics literature, this issue has been extensively debated. Neo-classical growth theorists acknowledged and valued labor and capital as the fundamental growth components; on the other end, they considered the role of energy as neutral by bringing it as a secondary factor in the production process. The biophysicists and ecologists have a strong view of the importance of energy and its role in income determination. The energy-dependent economies are greatly affected by energy consumption’s variations (Cleveland et al, 1984; Dale et al, 2012; Cleveland, 1999). The traditional neo-classical growth model considered energy as an intermediate component
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