Energy-Growth Nexus in Indonesia: Fresh Evidence from Asymmetric Causality Test

Ikhsan Ikhsan,Muhammad Nasir,Nurjannah Nurjannah,Kamal Fachrurrozi,Elfiana Elfiana

doi:10.32479/ijeep.11837

Abstract

The purpose of this study is to examine the causality between energy consumption and economic growth with an asymmetric causality approach in Indonesia. Data used from 1971-2014. Asymmetric causality using the Hatemi-J method (2012). Bootstrap simulation is also implemented because the data is not normally distributed and there is volatility to get a more reliable critical value than using asymptotic values. The first finding is that classical causality with Toda-Yamamoto finds no relationship between energy consumption and economic growth in Indonesia. The second finding shows that asymmetric causality shows no relationship between energy consumption and economic growth on a positive cumulative basis. However, the third finding obtained a bidirectional in negative cumulative. It is known that the impact of a decrease in energy consumption is greater on a decrease in economic growth than vice versa. Based on these findings, energy consumption in Indonesia has reached an optimal point so that additional energy consumption does not have an impact on economic growth. However, efforts to stabilize energy and economic growth are urgently needed.

Highlights

In today’s modern era, energy plays an important role in the economy
The purpose of this research study is to examine the relationship between economic growth and energy from the asymmetric side from 1971 to 2014
This test is based on bootstrap simulation with leverage correction to produce an accurate critical value

Summary

Introduction

In today’s modern era, energy plays an important role in the economy. Energy becomes an important wheel in supporting every activity and production. The use of energy is inseparable as an input like capital and this is generally explained in the CobbDouglas extension model (Le and Nguyen, 2019). It started from research by Kraft and Kraft (1978) where at that time there was a crisis problem in 1970. Indonesia is a developing country that uses energy to promote optimal economic growth. After going through a period of crisis, the economy was seen recovering and energy consumption. As the findings by Azam et al (2015) with Soares et al (2014) This will have an impact on the policies that will be taken

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Results

Conclusion