Abstract
This paper re-examines the causal relationship between energy consumption and economic growth in four developing countries. The four countries include two lower-middle income economies, Ghana and Cote d’Ivoire, and two upper-middle income economies, Brazil and Uruguay. The study attempts to answer one critical question: Is the causal relationship between energy consumption and economic growth sensitive to a country’s level of income? In order to account for the omission-of-variable bias, the study incorporates exports as an intermittent variable between energy consumption and economic growth—thereby creating a simple multivariate model. Using the auto-regressive distributed lag (ARDL)-bounds testing procedure, our results show that while energy consumption Granger-causes economic growth in upper-middle income countries, in lower-middle income countries it is economic growth that drives energy consumption.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Altinay, G., & Karagol, E. (2005). Electricity consumption and economic growth: evidence from Turkey. Energy Economics, 27, 849–856.
Asafu-Adjaye, J. (2000). The relationship between energy consumption, energy prices and economic growth: time series evidence from Asian developing countries. Energy Economics, 22, 615–625.
Casselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: a new look at cross-country growth empirics. Journal of Economic Growth, 1(3), 363–389.
Cheng, B. S. (1997). Energy consumption and economic growth in Brazil, Mexico and Venezuela: a time series analysis. Applied Economics Letters, 4, 671–674.
Cheng, B. S. (1999). Causality between energy consumption and economic growth in India: an application of cointegration and error-correction modeling. Indian Economic Review, 34(1), 39–49.
Engle, R. F., & Granger, C. J. (1987). Cointegration and error-correction - representation, estimation and testing. Econometrica, 55, 251–278.
Ghirmay, T. (2004). Financial development and economic growth in sub-Saharan African countries: evidence from time Series analysis. African Development Review, 16, 415–432.
Gosh, S. (2002). Electricity consumption and economic growth in India. Energy Policy, 30, 125–129.
Harris, R., & Sollis, R. (2003). Applied time series modelling and forecasting. West Sussex: Wiley.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12, 231–254.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52, 169–210.
Masih, A. M. M., & Masih, R. (1996). Electricity consumption, real income and temporal causality: results from a multi-country study based on cointegration and error–correction modeling techniques. Energy Economics, 18, 165–183.
Morley, B. (2006). Causality between economic growth and migration: an ARDL bounds testing approach. Economics Letters, 90, 72–76.
Mozumder, P., & Marathe, A. (2007). Causality relationship between electricity consumption and GDP in Bangladesh. Energy Policy, 35, 395–402.
Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 37, 1979–1990.
Narayan, P. K., & Smyth, R. (2006). Higher education, real income and real investment in China: evidence from Granger causality tests. Education Economics, 14, 107–125.
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.
Narayan, P. K., & Singh, B. (2007). The electricity consumption and GDP nexus for Fiji Islands. Energy Economics, 29, 1141–1150.
Newey, W. K., & West, K. D. (1987). A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica, 55, 703–708.
Odhiambo, N. M. (2008). Financial depth, savings and economic growth in Kenya: a dynamic causal linkage. Economic Modelling, 25(4), 704–713.
Odhiambo, N. M. (2010). Energy consumption, prices and economic growth in three SSA countries: a comparative study. Energy Policy, 38, 2463–2469.
Oh, W., & Lee, K. (2004). Energy consumption and economic growth in Korea: testing the causality relation. Journal of Policy Modeling, 26, 973–981.
Paul, S., & Bhattacharya, R. B. (2004). Causality between energy consumption and economic growth in India: a note on conflicting results. Energy Economics, 26, 977–983.
Pesaran, M., & Shin, Y. (1999). An autoregressive distributed lag modeling approach to cointegration analysis. In S. Strom (Ed.), Econometrics and economic theory in the 20th century: the Ragnar Frisch centennial Symposium. Cambridge: Cambridge University Press.
Pesaran, M., Shin, Y., & Smith, R. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289–326.
Quah, D. (1993). Empirical cross-section dynamics in economic growth. European Economic Review, 37(2–3), 426–434.
Shiu, A., & Lam, P. L. (2004). Electricity consumption and economic growth in China. Energy Policy, 32, 47–54.
Soytas, U., & Sari, R. (2003). Energy consumption and GDP: causality relationship in G-7 countries and emerging markets. Energy Economics, 25, 33–37.
Wolde-Rufael, Y. (2006). Electricity consumption and economic growth: a time series experience for 17 African countries. Energy Policy, 34, 1106–1114.
Yoo, S. (2006). The causal relationship between electricity consumption and economic growth in ASEAN countries. Energy Policy, 34, 3573–3582.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Odhiambo, N.M. Energy Dependence in Developing Countries: Does the Level of Income Matter?. Atl Econ J 42, 65–77 (2014). https://doi.org/10.1007/s11293-013-9402-2
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11293-013-9402-2