Energy Consumption and Economic Growth Nexus: Evidence from Developed and Developing Countries
The relationship between energy consumption and economic growth has attracted a lot of interest given its policy relevance, particularly with respect to the growing concerns over energy scarcity and energy’s environmental costs. The aim of this paper is to investigate evidence for causality between energy consumption and economic growth within a multivariate framework for 23 developed countries and 16 developing countries. The application of the vector error-correction model (VECM) for Granger causality reveals that the causality directions in the 39 countries are mixed. However, the findings have important policy implications. Given that the causality from economic growth to energy consumption is more prevalent in developed countries than in developing countries, there is relatively more scope for more energy conservation measure as a feasible policy tool for these groups of countries. The results also provide evidence of unidirectional causality from energy to economic growth in Netherlands and bidirectional causality is found in Slovak Republic.
Keywords: Energy Consumption, Economic Growth, Causality, Vector Error Correction Model
Dr. Azlina Abd Aziz
Lecturer, Department of Economics