Nexus between energy consumption, health expenditure and economic growth in Australia

Abstract

Focussing on Australia, we examine the effects of energy consumption and health expenditure on output within the extended neo-classical Solow growth model. We use the ARDL bounds and non-Granger causality procedures for a sample period 1971-2014, to analyse the short-run and long-run effects of energy consumption and health expenditure on economic growth. Additionally, we examine the threshold values of energy and health expenditure. It is noted that in the long-run, energy consumption vis-a-vis output has a U-shaped relationship and the health expenditure has an inverted U-shaped relationship. The minimum energy consumption per capita necessary for growth needs to be at least 4,849 kilograms of oil equivalent, whereas the maximum amount of health expenditure, in real terms, should not exceed AU$ 5,959 per person. In terms of causality, we note a unidirectional causality from income, capital stock (investment) and health expenditure to energy consumption; and bidirectional causality between health expenditure and income. [Received: March 23, 2018; Accepted: November 18, 2018]