Natural gas, trade openness and economic growth in Peru: 1965–2022

Abstract

Natural gas is a major fuel in Peru, accounting for nearly 45 % of all energy sources used to generate electricity. This research aims to analyze the dynamic association between economic growth and natural gas consumption (NGC), considering Peru's trade openness (Tr) from 1965 to 2022. The augmented Dickey–Fuller unit root test is utilized to test the stationary properties of the log series of real gross domestic product (GDP), NGC, and real Tr. We used the autoregressive distributed lag (ARDL) cointegration approach to determine the long-run (LR) equilibrium association between the variables. As the second cointegration method, we used the Engle-Granger test. The results of the ARDL test support the cointegration of all variables, we find the opposite case with Engle-Granger method. The Granger causality results support the neutrality hypothesis between GDP and NGC, a two-way causality association between Tr and GDP, and the neutrality hypothesis between NGC and Tr. Nevertheless, in the LR, cointegration confirms the growth hypothesis between GDP and NGC. Similarly, we find that in the LR, the first lag of Tr positively impacts the current GDP value. Meanwhile, in the short run, Tr has a positive effect on Peru's GDP. Then, using the findings of cointegration among all variables, we can conclude that NGC and Tr are the drivers of economic growth in Peru in the LR. Finally, we discuss the policy implications of our results.