Assessing energy consumption and economic growth interrelations in Asia-Pacific: A multivariate approach with panel FMOLS and bootstrap Granger causality tests

Abstract

This study investigates the cointegration and causal relationship between energy consumption and economic growth using data from 16 Asian and Pacific countries from 1970 to 2010. The expanded production function is used in this investigation; this function considers not only labor but also financial resources. This study investigates whether or not a rise in energy demand is associated with a healthy economy. Human capital, in addition to material and labor resources, is taken into account by this operation. One of the first studies to adopt a multivariate method and add human capital was undertaken on the energy-growth nexus. Using the panel unit root and cointegration tests, this study confirms the existence of a long-run cointegrating connection between these variables. These studies recognize the presence of cross-sectional interdependence, according to specific reports. The significance of considering the interconnection of various countries is confirmed by comparing estimates from panel heterogeneous fully modified ordinary least squares (FMOLS) models with those from unceasingly efficient and fully modified models. Nonetheless, the bootstrap panel Granger causality test findings demonstrate that economic growth is a causal factor in rising energy consumption in the region, indicating that the relationship is not constant across countries.