Energy consumption and Sustainable Economic Welfare in G7 countries; A comparison with the conventional nexus

Abstract

This is an empirical study on the causal relationship between sustainable economic welfare growth and energy consumption for Canada, France, Germany, Italy, Japan, UK and the USA using a multivariate panel framework with variables such as employment, capital, energy consumption and R&D. The short and long run relationships are compared with those produced from the commonly known so far, energy-GDP (Gross Domestic Product) growth relationship. Results mainly show that in the long-run, G7 economies can reduce energy consumption without compromising sustainable economic welfare. In the short-run though, both GDP and economic welfare are very much dependent on energy consumption for their materialization of growth, sustainable or not. The current paper follows the tendency of New Economics that shift their focus therein and propagate the use of sustainable welfare in place of the criticized GDP. The calculation of the Index for Sustainable Economic Welfare (ISEW) reveals that UK, closely followed by USA, have the largest gap (on average 52% and 50% respectively) between their GDP and sustainable economic welfare. Japan is experiencing a steadily widening gap, while Canada is the most sustainable country among G7.