The relationship of energy intensity with economic growth:Evidence for European economies

Abstract

This study analyzes the impact of economic growth on energy intensity in European countries. Since energy intensity may decrease with economic growth due to technical changes accompanying growth, the study removes the effects of technical changes in the use of energy as captured by trend while analyzing the energy-growth relationship. It is argued that the negative relationship does not have to be interpreted as the result of declining trend in energy intensity. The empirical analysis shows that energy intensity is significantly reduced in response to economic growth even when the former is de-trended. The inverse relationship between energy intensity and economic growth, as already found in the literature, persists even if the trend and inertia in the energy-intensity series are controlled and the effects of rising taxes on energy, environment and transport and rising energy prices are taken into account. It is further observed the European countries have been able to economize on the use of energy not only through their economic growth but also due to stable and in some cases declining populations.