How is energy intensity affected by industrialisation, trade openness and financial development? A dynamic analysis for the panel of newly industrialized countries

Abstract

Exploring the factors that affect energy intensity is a worthy research topic because a decline of energy intensity lowers greenhouse gas emissions and increases energy security. Therefore, using the World Bank data from 2000 to 2020, this study examined how industrialisation, trade openness, financial development, and urbanisation affected energy intensity in 12 Newly Industrialized Countries (NICs). We used panel autoregressive distributed lag/pooled mean group (ARDL/PMG), cross-sectional ARDL (CS-ARDL), and fully modified ordinary least squares (FMOLS) to determine the long- and short-run effects of explanatory variables on the dependent variable, energy intensity. All variables are found stationary after the unit root test and cointegration test confirms that variables are linked in the long run. Panel ARDL/PMG and CS-ARDL results show that industrialisation increases energy intensity in the long and short runs. These tests also show that financial development increases energy intensity over time but not immediately. Trade openness decreases energy intensity in the long run but not in the short run. Urbanisation has negligible effects. Dumitrescu and Hurlin (2012) Granger causality test result shows that energy intensity causes trade openness. The test also shows two-way causality between industrialisation, financial development, and energy intensity. Results-driven policy recommendations, such as investment in efficient and environmentally friendly technologies, and facilitation of trade openness, are made following the conclusion.