The effects of energy prices, urbanization and economic growth on energy consumption per capita in 186 countries

Abstract

Energy is the material basis for the development of national economy. However, energy shortages become increasingly serious as a result of the growing population and the modernization of the global economy. Therefore, investigating drivers of energy consumption is crucial to coordinate the relationship between energy and national economic growth. This study aimed to uncover the effects of energy prices (EP), urbanization (URN) and GDP on per capita energy consumption (EC) with considering the income gaps between countries. The paper adopted the Granger causality test approach and the impulse response function analysis by using long-term time series data on EC, EP, URN and GDP during 1980–2015 in 186 countries divided into three groups (high-income, upper- and lower-middle income groups). The results indicated a long-term co-integration relationship among these variables. Granger causality test showed a bidirectional causality between URN and EC in high and lower-middle income countries but no causality in the upper-middle income group. In all groups, there is a bidirectional causal link between GDP and EC. The results of IRF showed that as urbanization level improves, its role in promoting EC become less significant. Moreover, EP affected EC negatively both in high and lower-middle income countries, but it has a positive impact on EC in upper-middle income countries. The study supports the finding that urbanization is an important factor affecting energy consumption per capita, although its contributions vary across income groups, which offers a new pathway to control the excessive growth of energy consumption.