Determinants of energy consumption in BRICS-T countries

Abstract

With the emergence of globalization borders are fading out and economies are getting ever more interdependent with increasing trade volumes. As global population goes up, consumption demand reinforces increases in output. In this regard, energy can be regarded as one of the most critical inputs in the process of development and growth. Accordingly, the process of growth and industrialization has been gradually increasing the dependence of world economies on energy. Energy consumption has been steadily growing with each passing year, hence increasing the dependence on energy even further. This study examines the factors that determine energy consumption. For this purpose, the factors that determine energy consumption in BRICS-T countries (Brazil, Russia, India, China, South Africa, and Turkey) are analyzed for the period of 1992-2018. Foreign direct investments, energy prices and economic growth are taken to be the potential factors determining energy consumption. Error Correction Method (ECM) proposed by Westerland and LM Boostrap cointegration tests suggested by Westerland and Edgerton is used to test the existence of long term relationship between the series. Long term cointegration coefficients have been estimated using Common Correlated Effects Mean Group (CCEMG) estimator and Augmented Mean Group (AMG) estimator. The findings obtained from the analysis confirm that, firstly, all three variables (foreign direct investments, prices of energy, and economic growth) are critical and have a long-term relationship with energy consumption. Secondly, the series of foreign direct investments is significant in all countries subject to our panel data analysis. Economic growth series is only significant for Turkey and China. Energy prices series are found to be significant in Russia, S. Africa, and China.