Causality between Energy Consumption and Economic Growth in the Presence of Growth Volatility: Multi-Country Evidence

Gulasekaran Rajaguru,Safdar Ullah Khan

doi:10.3390/jrfm14100471

Gulasekaran Rajaguru, Safdar Ullah Khan

Open Access

https://doi.org/10.3390/jrfm14100471

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Abstract

Falling energy intensity (increasing efficiency) is believed to be a result of more efficient production methods that have evolved over time, indicating overall sustainability in the production process. The objective of this study is to investigate the diminishing trend of energy intensity and the related volatilities in growth of energy consumption and income growth through the energy–growth nexus. The country specific long-run and short-run causal relationships among real energy consumption per capita, real GDP per capita, and the volatilities of growth in income and the growth in energy consumption are established using the method proposed by Yamamoto–Kurozumi within a cointegration framework in 48 countries. The overall findings suggest that energy intensity is falling, in conjunction with the existing evidence on the energy–growth nexus in most of the countries studied; hence, implicitly this confirms sustainability. The results based on volatility analysis show a significant decrease in energy use in response to increasing income growth volatility. The negative effects of income growth volatility on energy consumption are usually countered through compensation measures, with subsidies provided to households and producers in order to smooth the energy consumption behaviours in those economies.

Highlights

We observed that the energy-intensity is falling in both groups of countries, motivating us to estimate the correct magnitude of the relationship between per-capita energy use and economic growth
We found that the historical evolution of energy intensity provides a new explanation for the energy–growth nexus, unlike the previous literature that merely relies on causality between the two
This study offers the unique feature of expressing the energy–growth nexus in terms of volatility analysis, which adds great value to the existing literature on this topic

Summary

Introduction

Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. The main purpose of this paper, by controlling for volatility in income growth and energy use, is to shed light on the global trend of falling energy intensity using the energy–

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Results

Conclusion