EXAMINING THE RELATIONSHIP BETWEEN ELECTRICITY CONSUMPTION, FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH IN ASEAN COUNTRIES: EVIDENCE FROM A BAYESIAN ANALYSIS

Canh Chi Hoang

doi:10.32479/ijeep.10642

Abstract

The literature has suggested that financial development and electricity consumption are key determinants of economic growth. However, existing studies usually was applied the frequentist inference, which is an outdated estimator. By applying the Bayesian approach via the Metropolis-Hasting and Gibbs samplers as the MCMC methods, the study aims to re-examine the impact of financial development and electricity consumption on economic growth in ASEAN+6 countries from 1980 to 2016. The obtained outcome shows that the impact of both financial development and electricity consumption is strong and positive on economic growth. There is a uni-directional causality running from economic growth to energy consumption, supported the Conversation hypothesis. Based on the empirical result, several policy implications are suggested for emerging countries, ASEAN+6 nations, in particular.Keywords: Financial development; Energy consumption; Economic growth; Bayesian; ASEAN countries.JEL Classifications: F43, O13, O47, Q42, Q43.DOI: https://doi.org/10.32479/ijeep.10642

Highlights

Physical capital accumulation is a crucial factor contributing to economic growth (Romer, 1990; Stiglitz, 2000)
The main aim of this study is to investigate the impact of financial development and electricity consumption on economic growth in ASEAN+6 countries from 1980 to 2016, so the model is preliminarily set as follows: LnGDPi,t E0 Xi E1.LnECi,t E2.LnFIi,t
The study applies the Bayesian approach via the MetropolisHasting and Gibbs samplers as the MCMC methods to investigate the impact of financial development and electricity consumption on economic growth in ASEAN+6 countries over the period 1980 to 2016

Summary

Introduction

Physical capital accumulation is a crucial factor contributing to economic growth (Romer, 1990; Stiglitz, 2000). Following the pioneering of Schumpeter (1912), majority of the economic researcher is persuaded that financial development allows foreign direct investment flows, encourages the investment of enterprises, reduces costs of loans, boost household consumption, and increase banking activities, less financial risks. The pressure of improving income per capita leads to pumping more money into the financial system by Government. A financial reduction is not good for economic growth. McKinnon (1974), Shaw (1974) argues that financial reduction leads to a fixed interest rate, decreasing banking activities, increasing the real exchange rate, reducing export, discourage the development of capital markets, and hurts economic growth A financial reduction is not good for economic growth. McKinnon (1974), Shaw (1974) argues that financial reduction leads to a fixed interest rate, decreasing banking activities, increasing the real exchange rate, reducing export, discourage the development of capital markets, and hurts economic growth

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Conclusion