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Date Published:
27/07/2021
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Nguyen, H. T. (2021). Economic growth and electricity consumption. Journal of International Economics and Management, 21(2), 1-23. https://doi.org/10.38203/jiem.021.2.0026
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Economic growth and electricity consumption
Main Article Content
Abstract
Do countries consume more electricity as they become richer? This study uses an instrumental variables approach to investigate the connection between electricity consumption and economic growth. With panel data of 32 countries spanning the period of 1996-2014, two potential instruments, which are an oil price shock as the main focus and past saving rates, are used for estimation. Controlling for country and time-fixed effects, the estimation results show no evidence of unidirectional causality runs from national income to electricity consumption.
Article Details
Keywords
Electricity consumption, Economic development
References
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Acemoglu, D., Johnson, S., Robinson, J. and Yared, P. (2008), “Income and Democracy”, American Economic Review, Vol. 98, pp. 808 - 842.
Acemoglu, D., Finkelstein, A. and Notowidigdo, M. (2013), “Income and health spending: evidence from oil price shocks”, Review of Economics and Statistics, Vol. 95 No. 4, pp. 1079 - 1095.
Altinay, G. and Karagol, E. (2005), “Electricity consumption and economic growth: evidence from Turkey”, Energy Economics, Vol. 27, pp. 849 - 856.
Apergis, N. and Payne, J. (2011), “A dynamic panel study of economic development and the electricity consumption - growth nexus”, Energy Economics, Vol. 33 No. 5, pp. 770 - 781.
Aqeel, A. and Butt, M.S. (2001), “The relationship between energy consumption and economic growth in Pakistan”, Asia-Pacific Development Journal, Vol. 8 No. 2, pp. 101 - 110.
Blundell, R. and Bond, S. (1998), “Initial conditions and moment restrictions in dynamic panel data models”, Journal of Econometrics, Vol. 87 No. 1, pp. 115 - 143.
Brückner, M., Ciccone, A. and Tesei, A. (2012), “Oil price shocks, income, and democracy”, Review of Economics and Statistics, Vol. 94 No.2, pp. 389 - 399.
Brückner, M. and Schwandt, H. (2013), “Income and population growth”, IZA Discussion Papers 7422, Institute for the Study of Labor (IZA).
Chen, S.T., Kuo, H.I. and Chen, C.C. (2007), “The relationship between GDP and electricity consumption in 10 Asian countries”, Energy Policy, Vol. 35 No. 4, pp. 2611 - 2621.
Cheon, A. and Johannes, U. (2012), “Oil prices and energy technology innovation: an empirical analysis”, Global Environmental Change, Vol. 22 No. 2, pp. 407 - 417.
Ciarreta, A. and Zarraga, A. (2008), “Economic growth and electricity consumption in 12 European countries: a causality analysis using panel data”, Department of Applied Economics III (Econometrics and Statistics), University of the Basque Country.
Das, A., Chowdhury, M. and Khan, S. (2012), “The dynamics of electricity consumption and growth nexus: empirical evidence from three developing regions”, Journal of Applied Economics, Vol. 6 No. 4, pp. 445 - 466.
Eltony, M.N. and Al-Awadi, M. (2001), “Oil price fluctuations and their impact on the macroeconomic variables of Kuwait: a case study using a VAR model”, International Journal of Energy Research, Vol. 25 No. 11, pp. 939 - 959.
Engle, R.F. and Granger, C.W.J. (1987), “Cointegration and error correction: representation, estimation, and testing”, Econometrica, Vol. 55, pp. 251 - 76.
Feenstra, R., Lipsey, R., Deng, H., Ma, A. and Mo, H. (2004), ‘‘World trade flows: 1962-2000”, NBER Working Paper No. 11040.
Ghosh, S. (2002), “Electricity consumption and economic growth in India.”, Energy Policy, Vol. 30 No. 2, pp. 125 - 129.
Ghosh, S. (2009), “Electricity supply, employment, and real GDP in India: evidence from cointegration and Granger-causality test”, Energy Policy, Vol. 37 No. 8, pp. 2926 - 2929.
Granger, C.W. (1969), “Investigating causal relations by econometric models and cross-spectral methods”, Econometrica, Vol. 37 No. 3, pp. 424 - 438.
Granger, C.W.J. and Newbold, P. (1974), “Spurious regressions in econometrics”, Journal of Econometrics, Vol. 2, pp. 111 - 120.
Granger, C.W.J. (1988), “Causality, cointegration, and control”, Journal of Economic Dynamics and Control, Vol. 12 No. 2-3, pp. 551 - 559.
Hamilton, J. (2009), “Understanding crude oil prices”, Energy Journal, Vol. 30 No. 2, pp. 179 - 206.
Ho, C.Y. and Siu, K.W. (2007), “A dynamic equilibrium of electricity consumption and GDP in Hong Kong: an empirical investigation”, Energy Policy, Vol. 35 No. 4, pp. 2507 - 2513.
International Energy Agency. (2014), “Electricity production from oil sources”, Available at https://www.iea.org/data-and-statistics (Accessed 15 July, 2018).
Johansen, S. (1988), “Statistical analysis of cointegration vectors”, Journal of Economic Dynamics and Control, Vol. 12 No. 2-3, pp. 231 - 254.
Johansen, S. and Juselius, K. (1990), “Maximum likelihood estimation and inference on cointegration with applications to money demand”, Oxford Bulletin of Economics and Statistic, Vol. 52 No. 2, pp. 169 - 210.
Jumbe, C.B.L. (2004), “Cointegration and causality between electricity consumption and GDP: empirical evidence from Malawi”, Energy Economics, Vol. 26 No. 1, pp. 61 - 68.
Karanfil, F. and Li, Y. (2015), “Electricity consumption and economic growth: exploring panel-specific differences”, Energy Policy, Vol. 82, pp. 264 - 277.
Kayikci, F. and Bildirici, M. (2015), “Economic growth and electricity consumption in GCC and MENA countries”, South African Journal of Economics, Vol. 83 No. 2, pp. 303 - 316.
Mehrara, M. (2007), “Energy consumption and economic growth: the case of oil-exporting countries”, Energy Policy, Vol. 35 No. 5, pp. 2939 - 2945.
Morimoto, R. and Hope, C. (2004), “The impact of electricity supply on economic growth in Sri Lanka”, Energy Economics, Vol. 26 No. 1, pp. 77 - 85.
Mozumder, P. and Marathe, A. (2007), “Causality relationship between electricity consumption and GDP in Bangladesh”, Energy Policy, Vol. 35 No. 1, pp. 395 - 402.
Murray, D.A. and Nan, G.D. (1996), “A definition of the gross domestic product-electrification interrelationship”, Journal of Energy and Development, Vol. 19 No. 2, pp. 275 - 283.
Narayan, P.K. and Smyth, R. (2005), “Electricity consumption, employment, and real income in Australia: evidence from multivariate Granger causality tests”, Energy Policy, Vol. 33 No. 9, pp. 1109 - 1116.
Narayana, P.K. and Singh, B. (2007), “The electricity consumption and GDP nexus for the Fiji Islands”, Energy Economics, Vol. 29 No. 6, pp. 1141 - 1150.
Narayan, P.K. and Prasad, A. (2008), “Electricity consumption-real GDP causality nexus: evidence from a bootstrapped causality test for 30 OECD countries”, Energy Policy, Vol. 36 No. 2, pp. 910 - 918.
Narayan, P.K. and Smyth, R. (2009), “Multivariate Granger-causality between electricity consumption, exports, and GDP: evidence from a panel of middle eastern countries”, Energy Policy, Vol. 37 No. 1, pp. 229 - 236.
Osman, M., Gachino, G. and Hoque, A. (2016), “Electricity consumption and economic growth in the GCC countries: panel data analysis”, Energy Policy, Vol. 98, pp. 318 - 327.
Ozturk, I. and Acaravci, A. (2011), “Electricity consumption and real GDP causality nexus: evidence from ARDL bounds testing approach for 11 MENA countries”, Applied Energy, Vol. 88 No. 8, pp. 2885 - 2892.
Payne, J.E. (2010), “A survey of the electricity consumption-growth literature”, Applied Energy, Vol. 87 No. 3, pp. 723 - 731.
Pedroni, P. (1999), “Critical values for cointegration tests in heterogeneous panels with multiple regressors”, Oxford Bulletin of Economics and Statistics, Vol. 61, pp. 653 - 670.
Pedroni, P. (2004), “Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis: new results”, Econometric Theory, Vol. 20, pp. 597 - 627.
Perron, P. (1989), “The great crash, the oil price shock, and the unit root hypothesis”, Econometrica, Vol. 57, pp. 1361 - 401.
Pesaran, M.H. and Shin, Y. (1999), “An autoregressive distributed lag modeling approach to cointegration analysis”, in Strom, S. (Ed.), Econometrics and Economic Theory in The 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge, UK, pp. 371 - 413.
Pesaran, M.H., Shin, Y. and Smith, R.J. (2001), “Bounds testing approaches to the analysis of level relationships”, Journal of Applied Economics, Vol. 16 No. 3, pp. 289 - 326.
Shiu, A. and Lam, P.L. (2004), “Electricity consumption and economic growth in China”, Energy Policy, Vol. 32 No. 1, pp. 47 - 54.
Sims, C.A. (1972), “Money, income and causality”, American Economic Review, Vol. 62 No. 4, pp. 540 - 552.
Squalli, J. (2007), “Electricity consumption and economic growth: bounds and causality analyses of OPEC countries”, Energy Economics, Vol. 29 No. 6, pp. 1192 - 1205.
Tang, C.F. (2008), “A re-examination of the relationship between electricity consumption and economic growth in Malaysia”, Energy Policy, Vol. 36 No. 8, pp. 3077 - 3085.
The Conference Board Total Economy Database. (2017), “Total factor productivity”, Available at https://conference-board.org/data/economydatabase/total-economy-database-productivity (Accessed 14 July, 2018).
Thoma, M. (2004), “Electrical energy usage over the business cycle”, Energy Economics, Vol. 26 No. 3, pp. 363 - 385.
Toda, H.Y. and Yamamoto, T. (1995), “Statistical inference in Vector Autoregressions with possibly integrated processes”, Journal of Economics, Vol. 66 No. 1 - 2, pp. 225 - 250.
UNCTAD. (2017), “Commodity price series”, United Nations Conference on Trade and Development, Available at https://unctadstat.unctad.org/EN/ (Accessed 14 July, 2018).
United Nations Comtrade Database. (2017), “Oil exports and imports”, Available at https://comtrade. un.org (Accessed July 14, 2018).
Westerlund, J. (2006), “Testing for panel cointegration with multiple structural breaks”, Oxford Bulletin of Economics and Statistics, Vol. 68, pp. 101 - 32.
World Bank. (2018), “World development indicators”, Available at https://data.worldbank.org (Accessed 14 July, 2018).
Wolde-Rufael, Y. (2006), “Electricity consumption and economic growth: a time series experience for 17 African countries”, Energy Policy, Vol. 34 No. 10, pp. 1106 - 1114.
Wolde-Rufael, Y. (2014), “Electricity consumption and economic growth in transition countries: a revisit using bootstrap panel Granger causality analysis”, Energy Economics, Vol. 44, pp. 325 - 330.
Yang, H.Y. (2000), “A note on the causal relationship between energy and GDP in Taiwan”, Energy Economics, Vol. 22 No. 3, pp. 309 - 317.
Yoo, S.H. (2005), “Electricity consumption and economic growth: evidence from Korea”, Energy Policy, Vol. 33 No. 12, pp. 1627 - 1632.
Yoo, S. (2006), “The causal relationship between electricity consumption and economic growth in the ASEAN countries”, Energy Policy, Vol. 34 No. 18, pp. 3573 - 3582.
Yoo, S.H. and Kim, Y. (2006), “Electricity generation and economic growth in Indonesia”, Energy, Vol. 31 No. 14, pp. 2890 - 2899.
Yuan, J. Zhao, C., Yu, S. and Hu, Z. (2007), “Electricity consumption and economic growth in China: cointegration and co-feature analysis”, Energy Economics, Vol. 29 No. 6, pp. 1179 - 1191.
Zivot, E. and Andrews, D. (1992), “Further evidence on the great crash, the oil price shock, and the unit root hypothesis”, Journal of Business & Economics Statistics, Vol. 20 No. 1, pp. 936 - 954.
Acemoglu, D., Johnson, S., Robinson, J. and Yared, P. (2008), “Income and Democracy”, American Economic Review, Vol. 98, pp. 808 - 842.
Acemoglu, D., Finkelstein, A. and Notowidigdo, M. (2013), “Income and health spending: evidence from oil price shocks”, Review of Economics and Statistics, Vol. 95 No. 4, pp. 1079 - 1095.
Altinay, G. and Karagol, E. (2005), “Electricity consumption and economic growth: evidence from Turkey”, Energy Economics, Vol. 27, pp. 849 - 856.
Apergis, N. and Payne, J. (2011), “A dynamic panel study of economic development and the electricity consumption - growth nexus”, Energy Economics, Vol. 33 No. 5, pp. 770 - 781.
Aqeel, A. and Butt, M.S. (2001), “The relationship between energy consumption and economic growth in Pakistan”, Asia-Pacific Development Journal, Vol. 8 No. 2, pp. 101 - 110.
Blundell, R. and Bond, S. (1998), “Initial conditions and moment restrictions in dynamic panel data models”, Journal of Econometrics, Vol. 87 No. 1, pp. 115 - 143.
Brückner, M., Ciccone, A. and Tesei, A. (2012), “Oil price shocks, income, and democracy”, Review of Economics and Statistics, Vol. 94 No.2, pp. 389 - 399.
Brückner, M. and Schwandt, H. (2013), “Income and population growth”, IZA Discussion Papers 7422, Institute for the Study of Labor (IZA).
Chen, S.T., Kuo, H.I. and Chen, C.C. (2007), “The relationship between GDP and electricity consumption in 10 Asian countries”, Energy Policy, Vol. 35 No. 4, pp. 2611 - 2621.
Cheon, A. and Johannes, U. (2012), “Oil prices and energy technology innovation: an empirical analysis”, Global Environmental Change, Vol. 22 No. 2, pp. 407 - 417.
Ciarreta, A. and Zarraga, A. (2008), “Economic growth and electricity consumption in 12 European countries: a causality analysis using panel data”, Department of Applied Economics III (Econometrics and Statistics), University of the Basque Country.
Das, A., Chowdhury, M. and Khan, S. (2012), “The dynamics of electricity consumption and growth nexus: empirical evidence from three developing regions”, Journal of Applied Economics, Vol. 6 No. 4, pp. 445 - 466.
Eltony, M.N. and Al-Awadi, M. (2001), “Oil price fluctuations and their impact on the macroeconomic variables of Kuwait: a case study using a VAR model”, International Journal of Energy Research, Vol. 25 No. 11, pp. 939 - 959.
Engle, R.F. and Granger, C.W.J. (1987), “Cointegration and error correction: representation, estimation, and testing”, Econometrica, Vol. 55, pp. 251 - 76.
Feenstra, R., Lipsey, R., Deng, H., Ma, A. and Mo, H. (2004), ‘‘World trade flows: 1962-2000”, NBER Working Paper No. 11040.
Ghosh, S. (2002), “Electricity consumption and economic growth in India.”, Energy Policy, Vol. 30 No. 2, pp. 125 - 129.
Ghosh, S. (2009), “Electricity supply, employment, and real GDP in India: evidence from cointegration and Granger-causality test”, Energy Policy, Vol. 37 No. 8, pp. 2926 - 2929.
Granger, C.W. (1969), “Investigating causal relations by econometric models and cross-spectral methods”, Econometrica, Vol. 37 No. 3, pp. 424 - 438.
Granger, C.W.J. and Newbold, P. (1974), “Spurious regressions in econometrics”, Journal of Econometrics, Vol. 2, pp. 111 - 120.
Granger, C.W.J. (1988), “Causality, cointegration, and control”, Journal of Economic Dynamics and Control, Vol. 12 No. 2-3, pp. 551 - 559.
Hamilton, J. (2009), “Understanding crude oil prices”, Energy Journal, Vol. 30 No. 2, pp. 179 - 206.
Ho, C.Y. and Siu, K.W. (2007), “A dynamic equilibrium of electricity consumption and GDP in Hong Kong: an empirical investigation”, Energy Policy, Vol. 35 No. 4, pp. 2507 - 2513.
International Energy Agency. (2014), “Electricity production from oil sources”, Available at https://www.iea.org/data-and-statistics (Accessed 15 July, 2018).
Johansen, S. (1988), “Statistical analysis of cointegration vectors”, Journal of Economic Dynamics and Control, Vol. 12 No. 2-3, pp. 231 - 254.
Johansen, S. and Juselius, K. (1990), “Maximum likelihood estimation and inference on cointegration with applications to money demand”, Oxford Bulletin of Economics and Statistic, Vol. 52 No. 2, pp. 169 - 210.
Jumbe, C.B.L. (2004), “Cointegration and causality between electricity consumption and GDP: empirical evidence from Malawi”, Energy Economics, Vol. 26 No. 1, pp. 61 - 68.
Karanfil, F. and Li, Y. (2015), “Electricity consumption and economic growth: exploring panel-specific differences”, Energy Policy, Vol. 82, pp. 264 - 277.
Kayikci, F. and Bildirici, M. (2015), “Economic growth and electricity consumption in GCC and MENA countries”, South African Journal of Economics, Vol. 83 No. 2, pp. 303 - 316.
Mehrara, M. (2007), “Energy consumption and economic growth: the case of oil-exporting countries”, Energy Policy, Vol. 35 No. 5, pp. 2939 - 2945.
Morimoto, R. and Hope, C. (2004), “The impact of electricity supply on economic growth in Sri Lanka”, Energy Economics, Vol. 26 No. 1, pp. 77 - 85.
Mozumder, P. and Marathe, A. (2007), “Causality relationship between electricity consumption and GDP in Bangladesh”, Energy Policy, Vol. 35 No. 1, pp. 395 - 402.
Murray, D.A. and Nan, G.D. (1996), “A definition of the gross domestic product-electrification interrelationship”, Journal of Energy and Development, Vol. 19 No. 2, pp. 275 - 283.
Narayan, P.K. and Smyth, R. (2005), “Electricity consumption, employment, and real income in Australia: evidence from multivariate Granger causality tests”, Energy Policy, Vol. 33 No. 9, pp. 1109 - 1116.
Narayana, P.K. and Singh, B. (2007), “The electricity consumption and GDP nexus for the Fiji Islands”, Energy Economics, Vol. 29 No. 6, pp. 1141 - 1150.
Narayan, P.K. and Prasad, A. (2008), “Electricity consumption-real GDP causality nexus: evidence from a bootstrapped causality test for 30 OECD countries”, Energy Policy, Vol. 36 No. 2, pp. 910 - 918.
Narayan, P.K. and Smyth, R. (2009), “Multivariate Granger-causality between electricity consumption, exports, and GDP: evidence from a panel of middle eastern countries”, Energy Policy, Vol. 37 No. 1, pp. 229 - 236.
Osman, M., Gachino, G. and Hoque, A. (2016), “Electricity consumption and economic growth in the GCC countries: panel data analysis”, Energy Policy, Vol. 98, pp. 318 - 327.
Ozturk, I. and Acaravci, A. (2011), “Electricity consumption and real GDP causality nexus: evidence from ARDL bounds testing approach for 11 MENA countries”, Applied Energy, Vol. 88 No. 8, pp. 2885 - 2892.
Payne, J.E. (2010), “A survey of the electricity consumption-growth literature”, Applied Energy, Vol. 87 No. 3, pp. 723 - 731.
Pedroni, P. (1999), “Critical values for cointegration tests in heterogeneous panels with multiple regressors”, Oxford Bulletin of Economics and Statistics, Vol. 61, pp. 653 - 670.
Pedroni, P. (2004), “Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis: new results”, Econometric Theory, Vol. 20, pp. 597 - 627.
Perron, P. (1989), “The great crash, the oil price shock, and the unit root hypothesis”, Econometrica, Vol. 57, pp. 1361 - 401.
Pesaran, M.H. and Shin, Y. (1999), “An autoregressive distributed lag modeling approach to cointegration analysis”, in Strom, S. (Ed.), Econometrics and Economic Theory in The 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge, UK, pp. 371 - 413.
Pesaran, M.H., Shin, Y. and Smith, R.J. (2001), “Bounds testing approaches to the analysis of level relationships”, Journal of Applied Economics, Vol. 16 No. 3, pp. 289 - 326.
Shiu, A. and Lam, P.L. (2004), “Electricity consumption and economic growth in China”, Energy Policy, Vol. 32 No. 1, pp. 47 - 54.
Sims, C.A. (1972), “Money, income and causality”, American Economic Review, Vol. 62 No. 4, pp. 540 - 552.
Squalli, J. (2007), “Electricity consumption and economic growth: bounds and causality analyses of OPEC countries”, Energy Economics, Vol. 29 No. 6, pp. 1192 - 1205.
Tang, C.F. (2008), “A re-examination of the relationship between electricity consumption and economic growth in Malaysia”, Energy Policy, Vol. 36 No. 8, pp. 3077 - 3085.
The Conference Board Total Economy Database. (2017), “Total factor productivity”, Available at https://conference-board.org/data/economydatabase/total-economy-database-productivity (Accessed 14 July, 2018).
Thoma, M. (2004), “Electrical energy usage over the business cycle”, Energy Economics, Vol. 26 No. 3, pp. 363 - 385.
Toda, H.Y. and Yamamoto, T. (1995), “Statistical inference in Vector Autoregressions with possibly integrated processes”, Journal of Economics, Vol. 66 No. 1 - 2, pp. 225 - 250.
UNCTAD. (2017), “Commodity price series”, United Nations Conference on Trade and Development, Available at https://unctadstat.unctad.org/EN/ (Accessed 14 July, 2018).
United Nations Comtrade Database. (2017), “Oil exports and imports”, Available at https://comtrade. un.org (Accessed July 14, 2018).
Westerlund, J. (2006), “Testing for panel cointegration with multiple structural breaks”, Oxford Bulletin of Economics and Statistics, Vol. 68, pp. 101 - 32.
World Bank. (2018), “World development indicators”, Available at https://data.worldbank.org (Accessed 14 July, 2018).
Wolde-Rufael, Y. (2006), “Electricity consumption and economic growth: a time series experience for 17 African countries”, Energy Policy, Vol. 34 No. 10, pp. 1106 - 1114.
Wolde-Rufael, Y. (2014), “Electricity consumption and economic growth in transition countries: a revisit using bootstrap panel Granger causality analysis”, Energy Economics, Vol. 44, pp. 325 - 330.
Yang, H.Y. (2000), “A note on the causal relationship between energy and GDP in Taiwan”, Energy Economics, Vol. 22 No. 3, pp. 309 - 317.
Yoo, S.H. (2005), “Electricity consumption and economic growth: evidence from Korea”, Energy Policy, Vol. 33 No. 12, pp. 1627 - 1632.
Yoo, S. (2006), “The causal relationship between electricity consumption and economic growth in the ASEAN countries”, Energy Policy, Vol. 34 No. 18, pp. 3573 - 3582.
Yoo, S.H. and Kim, Y. (2006), “Electricity generation and economic growth in Indonesia”, Energy, Vol. 31 No. 14, pp. 2890 - 2899.
Yuan, J. Zhao, C., Yu, S. and Hu, Z. (2007), “Electricity consumption and economic growth in China: cointegration and co-feature analysis”, Energy Economics, Vol. 29 No. 6, pp. 1179 - 1191.
Zivot, E. and Andrews, D. (1992), “Further evidence on the great crash, the oil price shock, and the unit root hypothesis”, Journal of Business & Economics Statistics, Vol. 20 No. 1, pp. 936 - 954.