The energy-growth nexus revisited: the role of financial development, institutions, government expenditure and trade openness

Hoang Phong Le

doi:10.1016/j.heliyon.2020.e04369

Hoang Phong Le

Open Access

https://doi.org/10.1016/j.heliyon.2020.e04369

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Journal: Heliyon	Publication Date: Jul 1, 2020
Citations: 45	License type: cc-by

Affiliation: University of Economics Ho Chi Minh City

Abstract

Although the energy-growth nexus has been widely investigated in the last several decades, there are still vivid debates in the energy economics field. This study evaluates the link between energy consumption and economic growth with the thorough assessment of the roles of institutional quality, government expenditure, financial development and trade openness in 46 Emerging Market and Developing Economies (EMDEs) from 1990 to 2014. By employing appropriate panel econometric techniques, cross-sectional dependence and slope heterogeneity are controlled, which helps explore the unbiased long-run effects of the determinants of economic growth as well as scrutinize the dynamic relationship among variables. The findings demonstrate that energy usage, gross fixed capital formation, government expenditure, financial development and trade openness positively and significantly impact the economic growth in the studied EMDEs. Moreover, Dumitrescu and Hurlin causality tests affirm the occurrence of feedback hypothesis in the connection between energy consumption and other variables including economic growth. Thus, it implies that energy consumption and economic growth are interdependent, which forms a basis for policy-makers to design effective energy and environmental policies. Toward the sustainable development goal, the author recommends the governments of EMDEs to contemplate the importance of finance-governance-trade relationship to economic growth alongside the implementation of energy-efficient policies.

Highlights

The vast majority of countries depend on energy industry in their development processes, and the world's demand for energy is higher and higher (Le and Sarkodie, 2020)
This study evaluates the impacts of energy consumption, government expenditure, institutional quality, financial development and trade openness together with capital on the economic growth of 46 Emerging Market and Developing Economies (EMDEs) by a multivariate framework with annual data from 1990 to 2014
This study examines the impacts of energy consumption, government expenditure, institutional quality, financial development and trade openness together with capital on the economic growth of 46 EMDEs by a multivariate framework using annual data from 1990 to 2014

Summary

Introduction

The vast majority of countries depend on energy industry in their development processes, and the world's demand for energy is higher and higher (Le and Sarkodie, 2020). According to British Petroleum (2018), primary energy consumption increased by 2.2% in 2017, which marks its fastest growth rate since 2013. The incremental energy consumption for economic activities raises a big issue of escalating environmental degradation (Dong et al, 2018; McConnell et al, 2018; Phong et al, 2018). Carbon dioxide (CO2), a main component of greenhouse gas, was emitted to the air at about 33,472.0 million metric tons in 2014, increasing dramatically from nearly 21,571.7 metric tons in 1990 with the annual growth rate of roughly 1.8% (BP, 2017). The worsened environmental quality has contributed to the improvement of environmental protection awareness which focuses on the role of efficient energy use in sustainable economic development (Phong, 2019; Le and Ozturk, 2020)

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