Keywords
economic growth
NARDL
co-integration
How to Cite
Abstract
The literature reveals that linear models do not accurately represent the asymmetric relationship between economic growth and energy consumption (EC). To fill this gap, we examined the asymmetric relationship between EC and economic growth in a non-linear panel autoregressive distributed lag (ARDL) framework of 85 countries as a whole sample and of Brazil, Russia, India, China, and South Africa (BRICS), the Next Eleven, Big Four in Western Europe, Asia-Pacific region, Group of Seven, South Asian Association for Regional Cooperation (SAARC), Economic Cooperation Organization (ECO) and the Arab League as a sub-sample analysis from 1977 to 2014. A second generational unit root test has been applied to check the problem of cross-sectional dependency. Asymmetric contegration was employed to analyse the co-integration between the variables of interest. Long-run and short-run estimates have been calculated using the non-linear panel ARDL method. Results indicate that positive shocks to energy use tend to have a growth-enhancing effect in ECO and the Next Eleven while in the rest of the regions, the effect is growth con- traction. Moreover, economic recovery from a positive shock to energy use is the case in the Arab League, Asia-Pacific region, Group of Seven and in the whole sample. However, a negative shock to EC is observed in the Group of Seven, Asia Pacific region, Big Four in Western Europe and ECO, and the whole sample worsens the economic contraction. We can deduct from this study’s results that information on the asymmetric relationship between the subject variables is needed to design sound economic policy decisions across different economic regions.
References
Ahmed A.D., Wahid A.N., 2011. Financial structure and economic growth link in African countries: A panel co-integration analysis. Journal of Economic Studies 38(3): 331- 357. DOI: https://www.doi.org/10.1108/01443581111152436.
Ali H.S., Nathaniel S.P., Uzuner G., Bekun F.V., Sarkodie S.A., 2020. Trivariate modelling of the nexus between electricity consumption, urbanisation and economic growth in Nigeria: Fresh insights from Maki Cointegration and causality tests. Heliyon 6(2): e03400.
Atems B., Hotaling C., 2018. The effect of renewable and nonrenewable electricity generation on economic growth. Energy Policy 112: 111-118.
Awodumi O.B., Adewuyi A.O., 2020. The role of non-renewable energy consumption in economic growth and carbon emission: Evidence from oil producing economies in Africa. Energy Strategy Reviews 27: 100434.
Bah M.M., Azam M., 2017. Investigating the relationship between electricity consumption and economic growth: Evidence from South Africa. Renewable and Sustainable Energy Reviews 80: 531-537.
Bayat T., Tas S., Tasar I., 2017. Energy consumption is a determinant of economic growth in BRICS countries or not? Asian Economic and Financial Review 7(8): 823-835.
Bayramoglu A.T., Yildirim E., 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(3): 170-186. DOI: https://www.doi.org/10.4236/EPE.2017.93013.
Baz K., Xu D., Ampofo G.M., Ali I., Khan I., Cheng J., Ali H., 2019. Energy consumption and economic growth nexus: New evidence from Pakistan using asymmetric analysis. Energy 189: 116254.
Bazarcheh Shabestari N., 2018. Energy consumption, CO2 emissions and economic growth: Sweden’s case. Online: http://www.diva-portal.org/smash/get/diva2:1214695/FULLTEXT01.pdf (accessed: 1 July 2021).
Burakov D., Freidin M., 2017. Financial development, economic growth and renewable energy consumption in Russia: A vector error correction approach. International Journal of Energy Economics and Policy 7(6): 39-47.
Chen C., Pinar M., Stengos T., 2020. Renewable energy consumption and economic growth nexus: Evidence from a threshold model. Energy Policy 139: 111295.
Chen Y., Fang Z., 2018. Industrial electricity consumption, human capital investment and economic growth in Chinese cities. Economic Modelling 69: 205-219.
Dumitrescu E.I., Hurlin C., 2012. Testing for Granger non-causality in heterogeneous panels. Economic Modelling 29(4): 1450-1460. DOI: https://www.doi.org/10.1016/j.econmod.2012.02.014.
Fotourehchi Z., 2017. Clean energy consumption and economic growth: A case study for developing countries. International Journal of Energy Economics and Policy 7(2): 61-64.
Ghosh S., Kanjilal K., 2020. Non-fossil fuel energy usage and economic growth in India: A study on non-linear co-integration, asymmetry and causality. Journal of Cleaner Production 273: 123032.
Gozgor G., 2018. A new approach to the renewable energy-growth nexus: Evidence from the USA. Environmental Science and Pollution Research 25(17): 16590-16600.
Gozgor G., Lau C.K., Lu Z., 2018. Energy consumption and economic growth: New evidence from the OECD countries. Energy 153: 27-34.
Hasan A., Zaman A., Sikder Z.I., Wadud A., 2017. The dynamics of electricity consumption, energy use and GDP in Bangladesh. Romanian Economic Journal 20(65): 35-49.
Hasanov F., Bulut C., Suleymanov E., 2017. Review of energy-growth nexus: A panel analysis for ten Eurasian oil exporting countries. Renewable and Sustainable Energy Reviews 73: 369-386.
Hatemi-J A., 2020. Hidden panel co-integration. Journal of King Saud University Science. 32(1): 507-510. DOI: https://www.doi.org/10.1016/j.jksus.2018.07.011.
Im K.S., Pesaran M.H., Shin Y., 2003. Testing for unit roots in heterogeneous panels. Journal of Econometrics 115(1): 53-74. DOI: https://www.doi.org/10.1016/S0304-4076(03)00092-7.
Ivanovski K., Hailemariam A., Smyth R., 2020. The effect of renewable and non-renewable energy consumption on economic growth: Non-parametric evidence. Journal of Cleaner Production 286: 124956.
Kao C., Chiang M.H., 1999. On the estimation and inference of a cointegrated regression in panel data. Advances in Econometrics 15: 179-222.
Kirikkaleli D., Sokri A., Candemir M., Ertugrul H.M., 2018. Panel co-integration: Long-run relationship between internet, electricity consumption and economic growth. Evidence from OECD countries. Investigación Económica 77(303): 161-176.
Kumari A., Sharma A.K., 2018. Causal relationships among electricity consumption, foreign direct investment and economic growth in India. The Electricity Journal 31(7): 33-38.
Kyophilavong P., Shahbaz M., Kim B., Jeong-Soo O.H., 2017. A note on the electricity-growth nexus in Lao PDR. Renewable and Sustainable Energy Reviews 77: 1251-1260.
Le T.H., Chang Y., Park D., 2020. Renewable and nonrenewable energy consumption, economic growth, and emissions: International evidence. The Energy Journal 41(2): 73-92.
Lechthaler F., 2017. Economic growth and energy use during different stages of development: An empirical analysis. Environment and Development Economics 22(1): 26-50.
Lewbel A., 2012. Using heteroscedasticity to identify and estimate mismeasured and endogenous regressor models. Journal of Business and Economic Statistics. 30(1): 67-80. DOI: https://www.doi.org/10.1080/07350015.2012.643126.
Lin B., Wang Y., 2019. Inconsistency of economic growth and electricity consumption in China: A panel VAR approach. Journal of Cleaner Production 229: 144-156.
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.
Meo M., Nathaniel S., Shaikh G., Kumar A., 2021. Energy consumption, institutional quality and tourist arrival in Pakistan: Is the nexus (a) symmetric amidst structural breaks? Journal of Public Affairs 21(2): e2213.
Munir Q., Lean H.H., Smyth R., 2020. CO2 emissions, energy consumption and economic growth in the ASEAN-5 countries: A cross-sectional dependence approach. Energy Economics 85: 104571.
Narayan P.K., Narayan S., 2005. Estimating income and price elasticities of imports for Fiji in a co-integration framework. Economic Modelling 22(3): 423-438.
Nathaniel S., Aguegboh E., Iheonu C., Sharma G., Shah M., 2020. Energy consumption, FDI, and urbanisation linkage in coastal Mediterranean countries: Re-assessing the pollution haven hypothesis. Environmental Science and Pollution Research 27(28): 35474-35487.
Nathaniel S., Nwodo O., Sharma G., Shah M., 2020. Renewable energy, urbanisation, and ecological footprint linkage in CIVETS. Environmental Science and Pollution Research 27(16): 19616-19629.
Nathaniel S.P., 2020. Does exchange rate have asymmetric impact on trade balance? Fresh insights from combined cointegration. Studies in Business and Economics 15(1): 259-269.
Nathaniel S.P., Bekun F.V., 2020. Electricity consumption, urbanisation, and economic growth in Nigeria: New insights from combined co-integration amidst structural breaks. Journal of Public Affairs 21(1): 1-12.
Nyasha S., Gwenhure Y., Odhiambo N.M., 2018. Energy consumption and economic growth in Ethiopia: A dynamic causal linkage. Energy and Environment 29(8): 1393-1412.
Obradovic S., Lojanica N., 2017. Energy use, CO2 emissions and economic growth-causality on a sample of SEE countries. Economic Research-Ekonomska Istraživanja 30(1): 511-526.
Pedroni P., 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61(S1): 653-670. DOI: https://www.doi.org/10.1111/1468-0084.0610s1653.
Pedroni P., 2000. Fully modified OLS for heterogeneous cointegrated panels. Advances in Econometrics 15: 93-130.
Pesaran M.H., 2004. General diagnostic tests for cross section dependence in panels. SSRN Electronic Journal. DOI: https://www.doi.org/10.2139/ssrn.572504.
Pesaran M.H., 2007. A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics 22(2): 265-312. DOI: https://www.doi.org/10.1002/jae.951.
Pesaran M.H., 2015. Testing weak cross-sectional dependence in large panels. Econometric Reviews 34(6-10): 1089- 1117. DOI: https://www.doi.org/10.1080/07474938.2014.956623.
Pesaran M.H., Shin Y., Smith R.J., 2001. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 16(3): 289-326.
Phillips P.C., Sul D., 2003. Dynamic panel estimation and homogeneity testing under cross section dependence. The Econometrics Journal 6(1): 217-259. DOI: https://www.doi.org/10.1111/1368-423x.00108.
Rahman M.M., Velayutham E., 2020. Renewable and non-renewable energy consumption-economic growth nexus: New evidence from South Asia. Renewable Energy 147: 399-408.
Saad W., Taleb A., 2018. The causal relationship between renewable energy consumption and economic growth: Evidence from Europe. Clean Technologies and Environmental Policy 20(1): 127-136.
Shahbaz M., Zakaria M., Shahzad S.J., Mahalik M.K., 2018. The energy consumption and economic growth nexus in top ten energy-consuming countries: Fresh evidence from using the quantile-on-quantile approach. Energy Economics 71: 282-301.
Shin Y., Yu B., Greenwood-Nimmo M., 2014. Modelling asymmetric cointegration and dynamic multipliers in a non-linear ARDL framework. In Festschrift in Honor of Peter Schmidt: 281-314. DOI: https://www.doi.org/10.1007/978-1-4899-8008-3_9.
Tatlı H., 2017. Short-and long-term determinants of residential electricity demand in Turkey. International Journal of Economics, Management and Accounting 25(3): 443-464.
Tugcu C.T., Topcu M., 2018. Total, renewable and non-renewable energy consumption and economic growth: Revisiting the issue with an asymmetric point of view. Energy 152: 64-74.
Ucar N., Omay T., 2009. Testing for unit root in nonlinear heterogeneous panels. Economics Letters 104(1): 5-8. DOI: https://www.doi.org/10.1016/J.ECONLET.2009.03.018.
Wang Q., Jiang R., Zhan L., 2019. Is decoupling economic growth from fuel consumption possible in developing countries?-A comparison of China and India. Journal of Cleaner Production 229: 806-817.
Wang Q., Wang L., 2020. Renewable energy consumption and economic growth in OECD countries: A non-linear panel data analysis. Energy 207: 118-200.
Westerlund J., 2007. Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics 69(6): 709-748.
Westerlund J., 2008. Panel co-integration tests of the Fisher effect. Journal of Applied Econometrics 23(2): 193-233. DOI: https://www.doi.org/10.1002/jae.967.
World Bank, 2020. World Bank Development Indicators database (online). Online: https://data.worldbank.org (accessed: 24 December 2020).
Zafar M.W., Shahbaz M., Hou F., Sinha A., 2019. From nonrenewable to renewable energy and its impact on economic growth: The role of research and development expenditures in Asia-Pacific Economic Cooperation countries. Journal of Cleaner Production 212: 1166-1178.
Zhou A., Li J., 2019. Heterogeneous role of renewable energy consumption in economic growth and emissions reduction: Evidence from a panel quantile regression. Environmental Science and Pollution Research 26(22): 22575-22595.