Abstract
This paper examines the nature of the economic activity–energy use nexus for 82 countries and the period from 1971 to 2014. Compared to all other papers, the current study is based on a significantly larger number of observations and was carried out by using new and advanced non-stationary panel data econometric techniques that overcame most of the existing methodical failures. The findings of the Granger non-causality test quite robustly lead to the conclusion that there is bi-directional causality both in the short and the long run. Finally, the obtained estimation results suggest that the increase of energy consumption by 1% results in an increase of GDP per capita between 0.54 and 0.56%. Also, the increase of GDP by 1% results in an increase in energy consumption between 0.47 and 0.48%. Governments cannot simply apply energy conservation policy by reducing total consumption of fossil fuels without negatively affecting economic activity and generating of spiral of mutual effects with positive ecological and very negative economic consequences. It is therefore necessary to make significant efforts to modernize the energy sector and to stimulate companies to invest in new energy-efficient production technologies relying on alternative environmentally friendly energy sources.
Similar content being viewed by others
Notes
A list of countries included in the panel sample can be obtained upon request from the author.
The testing was also conducted for remaining models, which cointegration test theoretically allows, but the application of the appropriate procedure (Pesaran, 2015) indicated the presence of contemporaneous correlation in the error term.
Regression models have also been estimated by applying both versions of AMG estimators, but, except for the model shown, they do not have acceptable diagnostic test results.
References
Adedoyin, F. F., Nathaniel, S., & Adeleye, N. (2021). An investigation into the anthropogenic nexus among consumption of energy, tourism, and economic growth: Do economic policy uncertainties matter? Environmental Science and Pollution Research, 28, 2835–2847. https://doi.org/10.1007/s11356-020-10638-x
Al-Iriani, M. A. (2006). Energy–GDP relationship revisited: An example from GCC countries. Energy Policy, 34, 3342–3350. https://doi.org/10.1016/j.enpol.2005.07.005
Alper, A., & Oguz, O. (2016). The role of renewable energy consumption in economic growth: Evidence from asymmetric causality. Renewable and Sustainable Energy Reviews, 60, 953–959. https://doi.org/10.1016/j.rser.2016.01.123
Apergis, N., & Payne, J. E. (2009a). Energy consumption and economic growth: Evidence from the Commonwealth of Independent States. Energy Economics, 31, 641–647. https://doi.org/10.1016/j.eneco.2009.01.011
Apergis, N., & Payne, J. E. (2009b). Energy consumption and economic growth in Central America: Evidence from a panel cointegration and error correction model. Energy Economics, 31, 211–216. https://doi.org/10.1016/j.eneco.2008.09.002
Apergis, N., & Payne, J. E. (2010). Energy consumption and growth in South America: Evidence from a panel error correction model. Energy Economics, 32, 1421–1426. https://doi.org/10.1016/j.eneco.2010.04.006
Apergis, N., & Payne, J. E. (2012). Renewable and non-renewable energy consumption-growth nexus: Evidence from a panel error correction model. Energy Economics, 34, 733–738. https://doi.org/10.1016/j.eneco.2011.04.007
Bai, J., & Carrion-I-Silvestre, J. L. (2009). Structural changes, common stochastic trends, and unit roots in panel data. The Review of Economic Studies, 76, 471–501. https://doi.org/10.1111/j.1467-937x.2008.00530.x
Baltagi, H. B., Feng, Q., & Kao, C. (2012). A Lagrange Multiplier test for cross-sectional dependence in a fixed effects panel data model. Journal of Econometrics, 170, 164–177. https://doi.org/10.1016/j.jeconom.2012.04.004
Banerjee, A., & Carrion-I-Silvestre, J. L. (2015). Cointegration in panel data with structural breaks and cross-section dependence. Journal of Applied Econometrics, 30, 1–23. https://doi.org/10.1002/jae.2348
Bayramoglu, A. T., & Yildirim, E. (2017). The relationship between energy consumption and economic growth in the USA: A non-linear ARDL bounds test approach. Energy and Power Engineering, 9, 170–186. https://doi.org/10.4236/epe.2017.93013
Belke, A., Dobnik, F., & Dreger, C. (2011). Energy consumption and economic growth: New insights into the cointegration relationship. Energy Economics, 33, 782–789. https://doi.org/10.1016/j.eneco.2011.02.005
Bond, S., & Eberhardt, M. (2009). Cross-section dependence in nonstationary panel models: a novel estimator. Munich Personal RePEc Archive Paper No. 17870. https://mpra.ub.uni-muenchen.de/17870/2/MPRA_paper_17870.pdf. Accessed 30 September 2016
Breusch, S. T., & Pagan, R. A. (1980). The Lagrange Multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47, 239–253. https://doi.org/10.2307/2297111
Campbell, J. Y., & Perron, P. (1991). Pitfalls and opportunities: What macroeconomists should know about unit roots. In O. J. Blanchard & S. Fisher (Eds.), NBER macroeconomics annual (Vol. 6, pp. 141–220). MIT Press.
Cerović Smolović, J., Muhadinović, M., Radonjić, M., & Đurašković, J. (2020). How does renewable energy consumption affect economic growth in the traditional and new member states of the European Union? Energy Reports, 6, 505–513. https://doi.org/10.1016/j.egyr.2020.09.028
Charfeddine, L., & Kahia, M. (2019). Impact of renewable energy consumption and financial development on CO2 emissions and economic growth in the MENA region: Vector autoregressive (PVAR) analysis. Renewable Energy, 139, 198–213. https://doi.org/10.1016/j.renene.2019.01.010
Chontanawat, J. (2020). Relationship between energy consumption, CO2 emission and economic growth in ASEAN: Cointegration and causality model. Energy Reports, 6, 660–665. https://doi.org/10.1016/j.egyr.2019.09.046
Comfort, E., Ojamaliya, A., Victoria, O., Abigail, G., & Oluwapelumi, A. (2018). Dynamic impact of energy consumption on the growth of Nigeria economy (1986–2016): Evidence from symmetrical autoregressive distributed lag model. International Journal of Energy Economics and Policy, 8, 188–195.
Costantini, V., & Martini, C. (2010). The causality between energy consumption and economic growth: A multi-sectoral analysis using non-stationary cointegrated panel data. Energy Economics, 32, 591–603. https://doi.org/10.1016/j.eneco.2009.09.013
Dobnik, F. (2011). Energy consumption and economic growth revisited: Structural breaks and cross-section dependence. Ruhr Economic Papers #303.https://doi.org/10.2139/ssrn.1981869. Accessed 16 May 2017
Dong, K., Dong, X., & Jiang, Q. (2020). How renewable energy consumption lower global CO2 emissions? Evidence from countries with different income levels. The World Economy, 42, 1665–1698. https://doi.org/10.1111/twec.12898
Eberhardt, M., & Teal, F. (2010). Productivity analysis in global manufacturing production. http://degit.sam.sdu.dk/papers/degit_15/c015_019.pdf. Accessed 24 May 2017
Elfaki, K. E., Poernomo, A., Anwar, N., & Ahmad, A. A. (2018). Energy consumption and economic growth: Empirical evidence for Sudan. International Journal of Energy Economics and Policy, 8, 35–41.
Emirmahmutoglu, F., & Kose, N. (2011). Testing for Granger causality in heterogeneous mixed panels. Economic Modelling, 28, 870–876. https://doi.org/10.1016/j.econmod.2010.10.018
Fisher, R.A. (1932). Statistical methods for research workers. Edinburgh, Oliver and Boyd
Huang, B.-N., Hwang, M. J., & Yang, C. W. (2008). Causal relationship between energy consumption and GDP growth revisited: A dynamic panel data approach. Ecological Economics, 67, 41–54. https://doi.org/10.1016/j.ecolecon.2007.11.006
Hubler, M., & Keller, A. (2009). Energy savings via FDI? Empirical evidence from developing countries. Environment and Development Economics, 15, 59–80. https://doi.org/10.1017/s1355770x09990088
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53–74. https://doi.org/10.1016/s0304-4076(03)00092-7
IPCC. (2014). Climate Change 2014: Synthesis Report. Fifth Assessment Report. [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. Geneva: Intergovernmental Panel on Climate Change. http://www.ipcc.ch/report/ar5/syr/ Accessed 16 March 2017
Kahsai, M. S., Nondo, C., Schaeffer, P. V., & Gebremedhin, T. G. (2012). Income level and the energy consumption–GDP nexus: Evidence from Sub-Saharan Africa. Energy Economics, 34, 739–746. https://doi.org/10.1016/j.eneco.2011.06.006
Kapetanios, G., Pesaran, M. H., & Yamagata, T. (2011). Panels with non-stationary multifactor error structures. Journal of Econometrics, 160, 326–348. https://doi.org/10.1016/j.jeconom.2010.10.001
Kouton, J. (2019). The asymmetric linkage between energy use and economic growth in selected African countries: Evidence from a nonlinear panel autoregressive distributed lag model. Energy Economics, 83, 475–490. https://doi.org/10.1016/j.eneco.2019.08.006
Lee, C.-C. (2005). Energy consumption and GDP in developing countries: A cointegrated panel analysis. Energy Economics, 27, 415–427. https://doi.org/10.1016/j.eneco.2005.03.003
Lee, C.-C., & Chang, C.-P. (2007). Energy consumption and GDP revisited: A panel analysis of developed and developing countries. Energy Economics, 29, 1206–1223. https://doi.org/10.1016/j.eneco.2007.01.001
Lee, C.-C., & Chang, C.-P. (2008). Energy consumption and economic growth in Asian economies: A more comprehensive analysis using panel data. Resource and Energy Economics, 30, 50–65. https://doi.org/10.1016/j.reseneeco.2007.03.003
Lee, C.-C., Chang, C.-P., & Chen, P.-F. (2008). Energy-income causality in OECD countries revisited: The key role of capital stock. Energy Economics, 30, 2359–2373. https://doi.org/10.1016/j.eneco.2008.01.005
Lee, C.-C., & Chiu, Y.-B. (2011). Oil prices, nuclear energy consumption, and economic growth: New evidence using a heterogeneous panel analysis. Energy Policy, 39, 2111–2120. https://doi.org/10.1016/j.enpol.2011.02.002
Lee, C.-C., & Lee, J.-D. (2010). A panel data analysis of the demand for total energy and electricity in OECD countries. The Energy Journal, 31, 1–23. https://doi.org/10.5547/issn0195-6574-ej-vol31-no1-1
Mahadevan, R., & Asafu-Adjaye, J. (2007). Energy consumption, economic growth and prices: A reassessment using panel VECM for developed and developing countries. Energy Policy, 35, 2481–2490. https://doi.org/10.1016/j.enpol.2006.08.019
Mehrara, M. (2007). Energy consumption and economic growth: The case of oil exporting countries. Energy Policy, 35, 2939–2945. https://doi.org/10.1016/j.enpol.2006.10.018
Mensah, I. A., Sun, M., Gao, C., Omari-Sasu, A. Y., Zhu, D., Ampimah, B. C., & Quarcoo, A. (2019). Analysis on the nexus of economic growth, fossil fuel energy consumption, CO2 emissions and oil price in Africa based on a PMG panel ARDL approach. Journal of Cleaner Production, 228, 161–174. https://doi.org/10.1016/j.jclepro.2019.04.281
Mishra, V., Smyth, R., & Sharma, S. (2009). The energy-GDP nexus: Evidence from a panel of Pacific Island countries. Resource and Energy Economics, 31, 210–220. https://doi.org/10.1016/j.reseneeco.2009.04.002
Narayan, P. K., & Smyth, R. (2008). Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks. Energy Economics, 30, 2331–2341. https://doi.org/10.1016/j.eneco.2007.10.006
Neal, T. (2015). Estimating heterogeneous coefficients in panel data models with endogenous regressors and common factors. Working Paper. http://www.uq.edu.au/economics/PHD2015/papers/Neal%20Estimating%20Heterogeneous%20Coefficients%20in%20Panel%20Data%20Models%20with%20Endogenous%20Regressors%20and%20Co.pdf. Accessed 4 September 2018
Niu, S., Ding, Y., Niu, Y., Li, Y., & Luo, G. (2011). Economic growth, energy conservation and emissions reduction: A comparative analysis based on panel data for 8 Asian-Pacific countries. Energy Policy, 39, 2121–2131. https://doi.org/10.1016/j.enpol.2011.02.003
Ozturk, I. (2010). A literature survey on energy-growth nexus. Energy Policy, 38, 340–349. https://doi.org/10.1016/j.enpol.2009.09.024
Ozturk, I., Aslan, A., & Kalyoncu, H. (2010). Energy consumption and economic growth relationship: Evidence from panel data for low and middle income countries. Energy Policy, 38, 4422–4428. https://doi.org/10.1016/j.enpol.2010.03.071
Payne, J. E. (2010). Survey of the international evidence on the causal relationship between energy consumption and growth. Journal of Economic Studies, 37, 53–95. https://doi.org/10.1108/01443581011012261
Pesaran, M.H. (2004). General diagnostic tests for cross-section dependence in panels. Cambridge Working Papers in Economics (CWPE) (Working Paper 35/04). https://www.repository.cam.ac.uk/bitstream/handle/1810/446/cwpe0435.pdf?sequence=1&isAllowed=y. Accessed 16 May 2017
Pesaran, M. H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica, 74, 967–1012. https://doi.org/10.1111/j.1468-0262.2006.00692.x
Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross section dependence. Journal of Applied Econometrics, 22, 265–312. https://doi.org/10.1002/jae.951
Pesaran, M. H. (2015). Testing weak cross-sectional dependence in large panels. Econometric Reviews, 34, 1088–1116. https://doi.org/10.1080/07474938.2014.956623
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94, 621–634. https://doi.org/10.2307/2670182
Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics, 68, 79–113. https://doi.org/10.1016/0304-4076(94)01644-f
Petrović, P., Nikolić, G., & Ostojić, I. (2017). Demographic determinants of energy consumption in the European Union: Econometric analysis results. Stanovništvo, 55, 1–20. https://doi.org/10.2298/stnv170606003p
Qiao, H., Chen, S., Dong, X., & Dong, K. (2019). Has China’s coal consumption actually reached its peak? National and regional analysis considering cross-sectional dependence and heterogeneity. Energy Economics, 84, 104509. https://doi.org/10.1016/j.eneco.2019.104509
Radmehr, R., Henneberry, S. R., & Shayanmehr, S. (2021). Renewable energy consumption, CO2 emissions, and economic growth nexus: A simultaneity spatial modeling analysis of EU countries. Structural Change and Economic Dynamics, 57, 13–27. https://doi.org/10.1016/j.strueco.2021.01.006
Rafindadi, A. A., & Usman, O. (2021). Toward sustainable electricity consumption in Brazil: The role of economic growth, globalization and ecological footprint using a nonlinear ARDL approach. Journal of Environmental Planning and Management, 64(5), 905–929. https://doi.org/10.1080/09640568.2020.1791058
Sek, S.K. (2017). The impact of energy consumption on economic growth: The case of China. Applied Ecology and Environmental Research, 15, 1243–1254, https://doi.org/10.15666/aeer/1503_12431254.
Shahbaz, M., Raghutla, C., Chittedi, K. R., Jiao, Z., & Vo, X. V. (2020). The effect of renewable energy consumption on economic growth: Evidence from the renewable energy country attractive index. Energy, 207, 118162. https://doi.org/10.1016/j.energy.2020.118162
Sinha, D. (2009). The energy consumption-GDP nexus: Panel data evidence from 88 countries. Munich Personal RePEc Archive Paper No. 18446. https://mpra.ub.uni-muenchen.de/18446/1/MPRA_paper_18446.pdf. Accessed 30 October 2018
Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66, 225–250. https://doi.org/10.1016/0304-4076(94)01616-8
Urbain, J.R.Y.J., & Westerlund, J. (2006). Spurious regression in nonstationary panels with cross-unit cointegration. (METEOR Research Memorandum; No. 057). Maastricht: METEOR, Maastricht University School of Business and Economics.
Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics, 69, 709–748. https://doi.org/10.1111/j.1468-0084.2007.00477.x
Westerlund, J., & Edgerton, D. L. (2008). A simple test for cointegration in dependent panels with structural breaks. Oxford Bulletin of Economics and Statistics, 70, 665–704. https://doi.org/10.1111/j.1468-0084.2008.00513.x
Zou, S., & Zhang, T. (2020). CO2 emissions, energy consumption, and economic growth nexus: Evidence from 30 provinces in China. Mathematical Problems in Engineering, 2020, 8842770. https://doi.org/10.1155/2020/8842770
Acknowledgements
The author is grateful to Josep Lluís Carrion-I-Silvestre, Joakim Westerlund and Furkan Emirmahmutoglu for providing the appropriate GAUSS and MATLAB codes.
Funding
This work was supported by the Ministry of Education, Science and Technological Development of Republic of Serbia [project number III47010].
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The author declare that they have no conflict of interest.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Petrović, P. Economic sustainability of energy conservation policy: improved panel data evidence. Environ Dev Sustain 25, 1473–1491 (2023). https://doi.org/10.1007/s10668-021-02104-6
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10668-021-02104-6