Energy Consumption and Economic Growth:Evidence from Developed and Emerging Markets

Abstract

This research analyzed the effect of energy consumption on economic growth using neo-classical one-sector aggregate production function with panel data from Emerging Markets and Developed countries over the period 2000–2013. This study has applied dynamic panel method in the form of two-step panel Generalized Method of Moments (both difference and system) GMM. The findings of this research exposed that both gross fixed capital formation and energy consumption have significant and positive effect on economic growth in both Developed and Emerging Market countries. In addition, labour force has been found to influence positively on economic growth in the group of Developed Market countries. However, labour force established the significant as well as negative effect on economic growth in the Frontier Market countries. Since the findings revealed that all the sampled countries are energy dependent, therefore, their policy makers should continue to promote the development of energy infrastructure with the aim to gain higher economic growth by making effective energy policies. This can be achieved through the allocation of more resources to the development of new sources of energy and ensure sustainability of energy use.